A credit card doesn’t have to be the piece of plastic you hide in the back of your wallet for emergencies only. In fact, with the proliferation of cards that let you earn rewards from cash to airline miles, your credit card can be an amazing financial tool. But if you opened your account when you were fresh out of college or when your credit score wasn’t so great, you might not have a very high spending limit.
The good news is that you can ask for an increase in your credit limit. But you might be wondering, “Does requesting a credit increase hurt my score?” The good news: probably not. Before you ask, though, learn how to increase your limit without lowering your credit score.
How Your Credit Limit Affects Your Overall Credit Score
Your credit limit alone doesn’t affect your score, but the way you use it can. Mike Sullivan, a personal finance consultant and previously the director of education at Take Charge America, a national nonprofit credit counseling and debt management agency, says, “Your credit limit represents the amount of available credit you have. By itself, it doesn’t have much impact, but the amount you owe represents your utilization, and that can matter a great deal.”
Your credit utilization is calculated by dividing the total amount of revolving credit you owe by the total amount of credit extended to you. For example, if you have a credit card with a limit of $1,000 and you carry a balance of $100, your credit utilization ratio is 10%. However, if you charge another $500, your utilization jumps to 60%.
Credit scores consider both the utilization rate on each credit card as well as your total credit utilization across all accounts.
Rod Griffin, director of public education for the credit bureau Experian, says, “A good rule of thumb is to always keep your utilization rate below 30%. However, the lower your utilization rate, the better. … While a high credit utilization rate can be a sign of financial distress, a low credit utilization rate shows that you’re using less of your available credit.”
Griffin says credit scoring models will interpret low utilization to mean you’re doing a good job of managing your credit and keeping spending in check. And considering that it makes up 30% of your overall FICO score, credit utilization is a factor to take seriously.
How to Increase Credit Limit AND Improve Your Credit Score
So, does requesting a credit limit increase hurt your score? Although people are often wary of ways they can accidentally hurt their credit scores, increasing your credit limit is actually an easy way to improve your score. Here’s how:
— Decrease your credit utilization. One of the biggest benefits of a credit limit increase is that it can have an instant positive impact on your credit. “Increasing your credit limit immediately decreases your utilization,” says Sullivan. For instance, consider the example from above. If you increased your credit card’s limit from $1,000 to $2,000 and left your $600 balance untouched, your utilization would drop from 60% to 30%. That could have a significant effect on your score.
— Maintain a low balance. Of course, this strategy doesn’t work if your balance grows along with your credit limit. Griffin says, “For some people, higher credit limits could represent the temptation to spend more.” That means you won’t reap the benefits of a higher credit limit. In fact, you could end up increasing your utilization rate if you’re not careful. “In general, the best way to improve your utilization ratio is to pay down your credit card balance and then keep it as low as possible,” says Griffin.
Is Requesting a Credit Increase a Hard Inquiry?
One thing to keep in mind when it comes to your credit score is credit inquiries. Pulling your own credit report or checking your credit score is considered a “soft” credit inquiry, which has no impact on your credit. However, a “hard” credit inquiry could have negative consequences.
Although a credit limit increase is generally good for your credit, requesting one could temporarily ding your score. That’s because credit card issuers will sometimes perform a hard pull on your credit to verify you meet their standards for the higher limit.
“Card issuers each have their own criteria when evaluating a request for a higher credit limit,” says Griffin. “Some lenders may check your credit report before approving any increase, while others may not.”
However, according to Griffin, the impact is “minimal.” Hard credit pulls generally knock your score by five to 10 points and stay on your credit report for two years.
How to Request a Credit Line Increase
There are a few ways to get a credit line increase:
— Make your payments consistently. If you’re ready for a credit limit increase, you might find that your card issuer has already granted you one. It’s not unusual for issuers to increase credit limits periodically as a reward for spending regularly but responsibly and for paying your bill on time. Griffin says, however, that most major card issuers will not automatically raise your credit limit until you have at least six to 12 months of on-time payments and haven’t exceeded your credit limit in the past.
— Work on keeping your balance low. Sullivan says your issuer might be concerned if you have been making only the minimum payments or your balance has been steadily increasing month over month, which could be interpreted as signs you’re experiencing financial distress. If this is the case, consider waiting to request a credit limit increase until you’ve paid your balance down or received a raise.
— Submit a request. If you haven’t received an automatic increase, usually all you have to do is ask. “Creditors usually don’t mind increasing credit lines,” says Sullivan. “In fact, they welcome it if they believe you will use it and pay.” Many card issuers allow you to make the request online. Simply log in to your account, update your income information and get an answer on the spot. In other cases, you will have to call the number on the back of your card and put your request through to a customer service representative.
Below are the steps to request a credit line increase from major credit card issuers:
— Bank of America credit line increase. Bank of America cardholders can request a credit limit increase by calling customer service at 800-732-9194 or by logging into the issuer’s online banking service. Bank of America notes that if your account is eligible to request a credit line increase online, you’ll be able to do so by selecting your credit card account, clicking the “information & services” tab and then clicking the “credit line increase” link in the “manage your account” section of “services.” If you aren’t eligible to request a Bank of America credit line increase, the link won’t appear.
— Capital One credit line increase. Capital One cardholders can request a credit limit increase by calling customer service at 800-CAPITAL (800-227-4825) or by applying online. When requesting a credit line increase online, start by selecting your card account. Capital One will then ask you to enter or verify personal details, such as your annual income, employment status, monthly mortgage or rent payment, and desired maximum credit line. Sometimes, Capital One will approve your new limit instantly, while other times it can take up to a few days to get a decision. In any case, Capital One will mail a letter explaining the details of the decision.
— Chase credit line increase. Chase cardholders can request a credit limit increase by calling customer service at 800-432-3117. Currently, Chase is not allowing customers to request credit limit increases online.
— Discover credit line increase. Discover cardholders can ask for credit line increases by calling customer service at 800-DISCOVER (800-347-2683) or by logging into online banking and making the request online. To ask for a Discover credit limit increase online, select “manage” from the top menu and then click the “credit line increase” link. You’ll then be taken to a page that shows your current card details, including your existing credit limit and amount of credit you have available. Here, you can enter your total annual gross income, the name of your employer and your monthly housing cost, and click “submit.” Ohio and New York residents, as well as joint applicants, can’t perform a request online and must request a credit limit increase over the phone.
If you’re denied an increase, consider opening a new card instead. “Different lenders have different policies. One may be trying to limit credit while another wants to expand it,” says Sullivan. By opening a new card and keeping your balance to a minimum, you can reap the same benefits as having an existing card’s limit increased. Just keep in mind that applying for a new credit card will result in a hard credit inquiry.
Pitfalls to Avoid When Asking for a Credit Line Increase
In theory, increasing your credit limit should have an overall positive effect on your credit score. But the health of your credit depends on the way you manage your account. Be sure not to undo the progress you’ve made by making these mistakes with your credit:
— Missing payments. “The worst thing you can do to your credit score is miss a payment,” says Sullivan. Accounting for 35% of your FICO score, payment history is the most important credit score factor. Missing just one payment on a bill can drop your score significantly.
— Applying too many times. If you’ve been rapid-firing requests to increase credit limits on your cards, Sullivan recommends slowing down and making deliberate decisions when it comes to changes to your financial situation. Too many changes at once, such as several requests for credit over a short period, could spell trouble for your score. Only apply for new credit when you truly need it.
— Making it easy to overspend. When it comes to increasing your credit limit, really consider your total financial picture first. Griffin says, “For example, if you know you’re a big spender, it may not be a good idea to request an increase because of the potential to stack on more debt and damage your credit scores.”
On the other hand, if you have a good handle on your finances and are able to keep balances low, increasing your credit limit could be the key to opening up your financial opportunities.
