How a Credit Limit Increase Impacts Your Credit Score

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What Is a Credit Limit Increase?

A credit limit is the amount that a card issuer allows you to spend on your account. A credit card company may sometimes increase your limit automatically if you use your card regularly and have had a good record of on-time payments. This is because a credit card issuer earns money both when you use your card and when you carry a balance.

If you have a higher limit, you might be enticed to spend more money on the card, thereby generating more profits for the card issuer. But many card holders also like to have higher limits to increase their spending flexibility. The easiest way to request a higher limit is online, but you can also call or visit your bank branch to make the request.

Before you do, however, it’s important to understand how a credit limit increase impacts your credit score.

How Credit Limit Increases Affect Your Credit Score

The truth is that some credit limit increases can have little-to-no effect on your score, while others might move it significantly.

Depending on whether or not you carry a balance, a credit limit increase might improve your credit utilization. This is an important component of your overall credit score, and it’s computed by dividing your existing balances by your total available credit. If you don’t carry a balance, your credit utilization is zero, regardless of how much your credit line goes up. So, in this example, a credit line increase won’t affect you that much.

When your credit line goes up, however, it does increase your amount of total available credit. This doesn’t often move the needle a huge amount in terms of your credit score, but it can play a role.

If you request the credit limit increase yourself, it may trigger a hard inquiry, which could decrease your credit score temporarily. However, typically if you already have an existing account and are merely requesting an increase, it doesn’t require a hard inquiry.

When Does a Credit Limit Increase Help Your Score?

A credit limit increase can increase your score the most if you have high balances on your credit cards. This is because it could dramatically reduce your credit utilization.

For example, imagine that you have a credit limit of $2,000 and a balance of $1,500. That puts your credit utilization at 67%. But if you can raise your credit limit to $3,000, your credit utilization will drop to 50%, a change that should push up your credit score.

Of course, you’ll have to avoid the temptation of spending more money and carrying a larger balance if your credit line increases. That could end up having the opposite effect on your score.

Can a Credit Limit Increase Hurt Your Score?

Generally speaking, a credit limit increase will not hurt your score. However, if you go about getting it the wrong way, or if you abuse it once it’s been granted, you could indeed drive your score down.

First, you should avoid triggering a hard inquiry when you request a credit limit increase. Most times this won’t happen, but be sure to read the fine print before you make your request. Sometimes, a card issuer may require a hard inquiry, but they will tell you beforehand.

The other risk of a higher credit limit to your score is that you will start spending more. If you have a credit line of $1,000, for example, you might only think of your card as something to use for groceries, dining out and other everyday expenses. But if your limit jumps to $10,000, you might start thinking about that “trip of a lifetime” you’ve always imagined.

That is not what an increased credit card limit should be used for — unless you can pay it off in full immediately.

Should You Request a Credit Limit Increase?

There are two primary reasons why you might want to increase your credit limit. The first is if you have a large outstanding balance, as a higher limit can improve your credit utilization ratio and consequently your credit score. The second is if you have a large purchase coming up and need a higher limit to cover it. If you’re collecting credit card points, you might want to use your card for a vacation, for example, even if you have the cash to pay it off. The same would apply to a cash-back credit card.

There’s another scenario in which you might want to request a limit increase, although it falls into a bit of a gray area. If you have a large, unexpected expense come up and don’t have the cash to pay for it — such as a car repair or medical bill — you might consider asking for an increase to your limit.

But understand that you’ll be paying very high interest rates on that balance you carry, which will strain your budget going forward and decrease your credit score.

How To Request a Credit Limit Increase

To request an increase in your credit limit, contact your credit card issuer. You may be able to request the increase through your account online or via the issuer’s app, or you can call its customer service number and ask directly.

There are some factors your issuer will consider when deciding whether to grant you an increased credit limit, such as your income, payment history, credit score and the length of time since your last increase.

To increase your chances of having your request approved, there are a few things you can do:

• Consistently make your payments on time, and pay your balance in full whenever possible.
• Avoid maxing out your existing credit.
• Make the issuer aware of any increases in your income.

You can also make the process easier by coming prepared — have documentation of your income, employment and housing payments, and be prepared to argue your case by pointing out your history of paying on time and responsible credit use.

Alternative Ways To Improve Credit Without Raising Your Limit

Raising your credit limit is something of an artificial way to improve your credit score, although it can be effective. But there are other, more traditional ways of raising your credit score, as well.

• Paying down existing balances is the most effective way to boost your score in a short period of time. Every time you lower your total debt amount, you also improve your credit utilization score, and the double whammy does wonders for your credit score. Your total debt comprises 30% of your entire FICO credit score.
• Making on-time payments is the single best way to improve your credit score overall, as it makes up the largest percentage of your total FICO score, at 35%. However, this is a method that can take time. While one late payment can hurt your score right away, you’ll need months or even years of on-time payments to boost it.
• Increasing total available credit through other means can raise your score, particularly if you carry a balance, as it will lower your credit utilization ratio. You can raise your total available credit by opening new accounts, but understand that a new credit inquiry will act as a drag on your score, potentially negating the boost from raising your available credit.

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