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Increasing your credit limit can have two immediate benefits: It can increase your credit score by lowering your credit utilization, and it gives you more purchasing power before your card is maxed out. Getting a credit limit increase means your card issuer thinks you’re worthy of trust with more borrowing power.
It’s generally beneficial to have higher credit limits, unless you’re worried about overspending. Sometimes issuers automatically grant credit limit increases, but you can usually request them as well. Here’s how and why it usually makes sense to request higher credit limits, and how this strategy compares to opening a new credit card.
Key takeaways
- Increasing your credit card limit can lower your credit utilization ratio, which can boost your credit score.
- It also gives you more purchasing power before maxing out the card.
- In some cases, a credit limit increase may be more convenient than a new credit card.
- Before requesting a credit limit increase, it’s a good idea to check your credit with a free or inexpensive credit monitoring service.
- If you get a raise, commit to using the expanded credit limit responsibly and not overspending.
Increase your credit score
Increasing your credit card limit can boost your credit score by reducing your overall credit utilization, as long as you don’t start spending more as a result. Here’s how.
Your credit utilization ratio is an important factor in calculating your credit score (“amounts owed” is 30% of your FICO score). Credit utilization refers to the amount of credit card debt you’ve compared to your total available credit — the more debt you’ve compared to your total credit limit, the more you’ve leveraged, and the worse it is for your credit. The lower your credit utilization, the better for your credit.
For example, let’s say you have two credit cards with a credit limit of $1,000 each, and a balance of $500 on one card. Your total available credit is $2,000, and your credit utilization ratio is 25% ($500 is 25% of $2,000).
Now, what if you increased one of these credit limits to $1,500 and maintained the same balance of $500? Your total available credit will be $2,500, and your credit utilization ratio will decrease to 20% ($500 is 20% of $2,500).
All other things being equal, this will very likely improve your credit score. But this only works if you don’t increase your spending too much as well. You may be able to spend more while keeping your usage relatively lower, but don’t max out by overspending.
If you already tend to have very low credit utilization each month, increasing your credit limit won’t do you much good in this regard. Most credit experts recommend keeping your credit utilization ratio at 30% or less.
When you request a credit limit increase, the issuer may conduct a hard credit inquiry, which may result in a slight decrease in your credit score in the short term. However, if the issuer automatically gives you the increase, there is no difficult investigation.
More purchasing power
It’s pretty simple: a higher credit limit gives you more purchasing power. You can spend more with your card before the limit is reached.
Again, the same warning about not overspending applies:Only charge as much as you can afford each month, and pay off your credit card in full each month to avoid accruing interest.
Extra purchasing power is especially helpful if you have a low credit limit, such as $500, which isn’t enough to meet your monthly spending needs. Being able to comfortably put all of your spending on one card each month, if you wish, is convenient. Compared to spending using multiple cards each month, it also offers less room for error and missed payments.
If you already have a very high credit limit, enough for your typical monthly spending, the increase will not affect your purchasing power. But if you tend to use a large percentage of your available credit each month, increasing your credit score may help by reducing your utilization.
Increase your credit limit for a new credit card
If you’re looking to increase your credit limit, you’ll likely want to spend more with the card. You may want to spend more of your daily spending on the card to earn more rewards. Maybe you have a large purchase coming up that you want to put on the card, and you’ve budgeted to pay it off over time (hopefully at a 0% interest rate, if possible).
If you need extra credit, you have two basic options. You can try to get an increase in the credit limit on your current card, or you can apply for a new credit card. Although getting a new card can be attractive for a number of reasons, such as rewards and introductory rewards, it may not be the best option if you only want it for a specific purchase.
In general, you should only open a new credit card if you plan to use it regularly for some time to come. This is especially true if there is an annual fee. Having more credit cards isn’t bad for your credit, per se, but each card represents an important financial decision that you shouldn’t take lightly.
If you have good use for a new credit card and understand how to use it responsibly, by all means, apply. But if you just want more purchasing power, you may be better off increasing your credit limit.
Getting a new credit card has many effects on your credit, some good and some bad. The initial hard inquiry from the application may have a slight negative impact. However, the new credit limit will add to your total available credit, which may reduce your utilization and improve your score (this is a relatively large factor). But, with the new card, your average credit length will also decrease, which could hurt your score (credit length makes up 15% of your FICO credit score).
How to request a credit limit increase
If you decide to ask for a credit limit increase, you need to know how to do it and think about how to reduce the chances of your request being rejected. Requesting a credit limit increase is very similar to applying for credit in the first place, with the same creditworthiness factors in place.
The timing of your application may be an important factor, and may also play a role in how high your credit limit is. Think about how long the account has been open. If you have recently received a credit card, you may want to establish some history of the account before requesting an increase.
This may not be a good time to ask for an increase if you have had some late payments recently or are currently behind on your payments. Try to establish a good record of paying your bill by the due date before submitting your application for the best chances of success.
When you feel ready to submit an application, you usually have one or two options:
- Call the number on the back of your card and ask a representative to increase your credit limit
- Check your online account dashboard or mobile app for the option to request a credit limit increase
Be prepared: The application may be approved immediately, or it may take some time. In some cases, the issuer may ask some personal questions about your current job and income. They may ask you to explain why you want a higher credit limit.
Be honest, but use this opportunity to make yourself look good. Indicate whether you have a high FICO score or are a long-time cardholder. Card issuers realize that there are plenty of other companies out there; As long as you are a good borrower, they want to keep you as a customer and not lose your business to someone else.
Frequently Asked Questions (FAQ)
Is it a good idea to increase your credit limit?
Yes, it’s generally a good idea to increase your credit limit, unless you’re worried about overspending. A higher credit limit gives you more purchasing power and can reduce your credit utilization, which can improve your credit score. Be aware that credit limit increase requests may require a strict credit investigation (if so, this will be disclosed when submitting the request).
How much credit limit increase should I ask for?
Some issuers allow you to request an increase by a certain amount, while others do not. If you’re able to ask for a certain amount, there’s probably no harm in aiming for a high amount. A typical increase would be around $500 or $1,000, but this can vary slightly depending on the card issuer, account history, and credit history in question. The higher your initial credit limit, the higher your increase request will be – up to a point.
Is it better to open a new credit card or increase the limit on my credit card?
Requesting a credit limit increase is generally faster and easier than opening a new credit card, so this may be a wise first option. If you just need a little extra purchasing power, this might be all you need. But, if you’ve looked for a new credit card, are happy with its rewards and perks, and agree with its terms and fees, there’s usually no reason not to open a new credit card — as long as you’ll use it with some regularity.
How high is my credit limit?
The right credit limit for you depends on your financial situation and credit history. In general, the higher your income and better your credit score, the higher your credit limits. It’s a good idea to aim for a credit line that allows you to cover all your monthly spending with a lot of flexibility, in case of emergencies and for the safety of your credit. The lower your credit utilization, the better for your credit; 30% or less is ideal. The credit limit you need to achieve this utilization ratio will depend on your typical monthly spending.
Bottom line
Increasing your credit limit may have some quick and obvious benefits. The biggest is increasing your credit score and increasing your purchasing power. Credit limit increase requests are usually easy to make, and are generally worth considering every now and then if the issuer doesn’t automatically raise your limit. Just remember to stick to your budget and don’t start overspending as a result of your increased borrowing capacity – otherwise you’re throwing away those benefits.
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