Should You Increase Your Credit Card Limit?

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Should You Increase Your Credit Card Limit?

You’ve probably seen an increase in the amount of available credit on your credit card at some point in your life. While you may not have asked for or desired an increase in your credit limit, it does indicate that your card issuer considers you to be an above-average borrower.

But what if you got a new credit card and the issuing firm gave you a low credit limit to begin with? What if the restriction was not increased after the first year? What is the appropriate credit limit for you? Should you request a raise? The answer to the final question is yes, for a variety of reasons.

Key Takeaways

  • Increasing the limit on your credit card decreases your credit usage ratio, which improves your credit score.
  • It may be a better option than opening a new credit card, which reduces your credit history and lowers your credit score.
  • When seeking a credit limit increase, ensure that you have a solid credit history.

Increase Your Credit Score

When you raise your total available credit, your credit usage ratio decreases. This is referred to as your credit usage rate. This is one of the elements considered by FICO when evaluating your credit score, and having a high credit use ratio might be detrimental. 1

For example, suppose you began with a $1,000 credit limit and frequently charge $800 to the card—this implies your credit usage is 80%. Assume you requested a credit limit increase and now have a maximum of $5,000. If you continue to charge $800 each month, your credit usage is now 16%.

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As you can see, increasing your credit limit decreases your credit usage ratio and improves your total credit score in the long run—but only provided your expenditure does not grow in parallel with the credit limit increase. If you raise your spending and max out the card at the increased limit, your credit usage ratio will rise again, lowering your credit score. 2 Most credit gurus advise maintaining this amount at or below 30%. 3

Consider this: When you seek an increase in your credit limit, the issuer may do a hard credit inquiry, which will result in a two- to five-point drop in your credit score in the near term. However, there is no hard inquiry if the issuer immediately provides you an increase.

Benefits of Credit Limit Increase vs. New Card

Anyone trying to boost their available credit will most likely want to be able to spend more with the card. This might be for a variety of reasons. To earn rewards, you may wish to put more of your usual spending on the card. Perhaps you have a large planned purchase for which you want to use the card and have budgeted to pay it off over time.

You have two alternatives if you need additional credit. You may either strive to raise the credit limit on your present card or apply for a new one. While acquiring a new card may be appealing due to the sign-up incentive, it may not be the best option for you. Your average duration of credit diminishes with each additional card you get. Because credit duration accounts for 15% of your credit score, you may see a short-term drop in your FICO score. 4

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When you need more accessible credit, you may be better off not getting a new card and instead requesting a credit limit increase on an existing one. 5

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6 Benefits Of Increasing Your Credit Limit

How to Ask for a Credit Limit Increase

Now that you’ve chosen to request a credit limit increase, you need to figure out how you’re going to do so—and perhaps lower your chances of being denied.

The timing of your request will be critical, and it will also influence how high your credit limit will be. Consider the length of time the account has been open. If you acquired the credit card lately, you may wish to create some history with the account before requesting an increase. Also, if you have a history of late payments or are now behind on your payments, now is generally not the time to request an increase. Before making your request, be sure you have a strong track record of paying your bills on time. 5

Once you’ve established a credit history that will make the issuer happy, contact the number on the back of your card. Be prepared: They will most likely ask you a slew of personal questions regarding your present job and income. They will also ask you to explain why you need a credit limit increase. Be truthful with them, but also take advantage of this chance to make yourself appear good. Mention that you have a good FICO score or that you have been a cardholder for a long time. Card issuers recognize that there are many other firms out there; as long as you are a good borrower, they want to maintain your business and not lose it to someone else.5

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Should You Increase Your Credit Limit?

Increasing your credit limit might be beneficial. The most important benefit is that it may assist lower your credit utilization ratio (as long as your expenditure remains constant), which can help improve your credit score. Determine the optimum moment to submit your request, and then go for it.

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