Getting a higher credit limit is almost always a good thing in your financial life.
This gives you more borrowing options and a flexible source of funds. If you have a bonus credit card, a higher line of credit also gives you the opportunity to earn more cash or points. Finally, having more affordable credit can also be good for your credit score.
Sometimes you can get an increased credit limit automatically, and other times you may need to contact your bank to request it.
Here are a few ways to increase your credit limit and tips on how to improve your chances of getting one.
How to request a higher credit limit
There are several ways to increase your credit limit:
- Contact your bank. You can request a higher line of credit by contacting your bank. You can do this by submitting a request online at your bank’s website or by calling the number on the back of your credit card. Calling your credit card issuer can seem like an extra step when you can just fill out an online form. However, talking to a bank representative gives you the opportunity to state your position.
- Watch out for auto zoom. Some issuers will automatically increase your credit limit after you have the card for a while. If a cardholder develops a responsible payment history, companies are more likely to increase the credit limit on the account.
- Consider an application for a new card. If you find yourself consistently making payments on your existing credit lines on time, you may be approved for a new card with a higher credit limit.
If you are denied, don’t worry and try again in six months or later. Ask your issuer how you can improve your chances next time and follow this advice to work on your credit.
What is a credit limit?
Your credit limit is the maximum balance you can have on your credit card. This is your spending limit set by your issuer and may be increased or decreased depending on your financial situation and credit card usage.
In some cases, you may exceed the credit limit by a certain amount set by your issuer. However, you will likely be charged for the credit limit. If you have not agreed to such fees, a transaction that exceeds your credit limit will be rejected.
How does your credit limit affect your use of credit?
Your credit card’s credit limit and how much you use affects not only your budget, but also your credit health. Making the most of your cards can result in significant credit damage and be a sign to lenders that you are in financial trouble.
“One of the most important factors that affects your credit score is your credit utilization ratio, or the amount of revolving credit you use in relation to the amount you have, both for each individual card you own and collectively for all your lines of credit. says Timothy E. Hansen, founder and CEO of Wealth Growth Wisdom, LLC.
That’s why just making the minimum payments on time isn’t enough if you’re aiming for a high credit score. Among other things, you need to ensure that the credit usage does not exceed 30 percent. Otherwise, your credit score may lose a lot of points.
This means that if, for example, you reach a balance of $3,000 on a credit card with a $10,000 limit, you may see your credit score worsen. To avoid this, keep an eye on your credit card spending and keep your credit usage ratio in single digits for best results.
Getting a higher credit limit can also help here.
“Adopting a higher credit limit by increasing the limit on your current cards…can help lower your credit utilization rate if you can resist the urge to spend more after getting more credit,” Hansen explains.
For example, if you have the same balance of $3,000 but your credit limit is increased to $15,000, your credit usage will drop to 20 percent and you may see your score improve as a result.
What you need to know about increasing your credit limit
Before asking your credit card issuer to increase your credit, it’s helpful to know what factors issuers consider when determining your credit limit, how to negotiate an increase, and how it might affect your score.
How credit card companies determine credit limits
Kevin Haney, president of Growing Family Assistance, explains that credit card issuers determine credit limits based on data provided by other lenders and private transaction information.
Haney spent a decade as an executive at Experian, working directly with many of the major credit card banks to assist them with risk management and marketing.
“Consumer credit reports show how a person handles their obligations to other institutions,” he says. “Banks set initial limits when opening an account. In addition, many receive periodic updates from the bureau to adjust the limits up to get a larger share of the wallet, and down to minimize losses when people start to run into problems.”
Card transaction information that is not reported to credit bureaus also enters the equation, Haney said. For example, cardholders who pay a high percentage of their balance each month are more likely to receive a raise than those who make only the minimum payment.
“Also, the type of seller is an important factor,” he adds. “For example, a person who regularly plays online games is less likely to get a raise.”
Does requesting a credit limit affect your credit score?
In most cases, an automatic credit limit increase only triggers a mild request that does not affect your account.
However, when you request an increase in your credit limit, your bank may perform a hard pull, depending on the issuer’s policies. Usually you are notified about this in advance. But if you haven’t, be sure to ask so you know what to expect.
A thorough inquiry can lower your credit score by several points. Fortunately, the impact of a single strong tug is rarely significant. While it will remain on your credit report for two years, it will no longer affect your grades after 12 months.
At the same time, multiple tough requests can lead to more serious consequences and be interpreted by creditors as an attempt to gain access to more funds in a desperate situation.
For this reason, do not apply for a higher line of credit from more than one issuer at the same time. Ideally, you should wait at least six months before requesting additional credit.
However, it can be a good strategy to increase your credit limit every year. This is a positive credit habit that can help you earn credit points regularly while getting the most out of the cards you have.
If you are denied, don’t worry and try again in six months or later. Ask your issuer how you can improve your chances and follow this advice to work on your credit.
bottom line
Getting a higher line of credit gives you more room to borrow and can have a positive impact on your credit score. It can also have the opposite effect on your creditworthiness and finances if you ask too much or ask too often and make the most of your credit cards.
When you get access to more credit, use it responsibly and be mindful of your credit utilization rate. Your budget and your credit score will thank you.
Editorial disclaimer
The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.
