How to Increase Your Credit Card’s Limit
If you’ve used a credit card responsibly for any amount of time, you might have received a notice in the mail stating that you are pre-approved for a credit limit increase. While more access to credit may seem like a good thing, requesting a credit line increase can be helpful or harmful, depending on your financial situation.
If you’re disciplined with your credit use and make a point to pay off your credit card every month, then increasing your credit limit can have several benefits, like boosting your credit score and better positioning you to deal with emergencies. On the other hand, if you tend to overspend, a higher credit limit can be damaging and may land you in financial trouble.
What Is a Credit Limit?
Your credit card has a limit, which is the maximum outstanding balance that you can carry at any one time without being penalized or having your charges declined. Your credit limit is determined by several factors, including the type of credit tool you’re using, your income level, and your credit score. If you aren’t sure what your credit limit is, it should be printed on your latest statement.
Should I Increase My Credit Limit?
There are many reasons to increase your credit limit. But before you request your increase, think carefully about the benefits and risks of having more access to credit. After all, having thousands of dollars in potential debt at your fingertips may not be a good thing.
Benefits of a Higher Credit Limit
A high limit will often result in a higher credit score, because it gives you a lower credit utilization ratio. Your credit utilization ratio is your outstanding balance relative to your credit limit. For example, if you have a credit card with a $5,000 limit, and you maintain a $1,000 balance, your credit utilization ratio is 20%. Your credit score will be highest if you keep your credit utilization ratio under 30%.
A second benefit to a higher credit limit is that you can use your card to charge large purchases, like home renovations. If you charge these large purchases to a travel rewards or cashback card, you’ll greatly increase the points or cash back you’ll earn in one year. But be sure to have a plan to pay off the balance before your grace period ends, because carrying a balance will result in more interest charged than you’ll earn in rewards.
Drawbacks of a Higher Credit Limit
A downside to a higher credit limit is that it exposes you to the risk of accumulating more debt than you can handle. If you aren’t in the habit of paying off your credit card every month, and you tend to carry a balance, then increasing your credit limit may not be a good idea. Remember that the more credit you have access to, the higher your maximum debt load will be, and the more you’ll pay every month in interest.
Before You Increase Your Credit Limit
There are a few steps you should take before requesting your credit card limit increase. First, you should check your credit score. Lenders will use your credit score to determine whether you are a trustworthy borrower. Your credit score is a number between 300-900, and the higher, the better. If your credit score is too low, your application to increase your credit limit may be denied.
You should also make sure that all your income sources are reported. You can do this by checking your credit report to ensure it is up to date with your latest employment information. You can obtain a copy of your credit report through Equifax or Transunion. If it isn’t up to date, ask the credit reporting agency to amend it.
Finally, make sure you aren’t over-leveraged before applying for your credit increase. If you have a lot of outstanding debt, your lender may not be able to increase your credit limit.
How to Increase Your Credit Limit
There are three primary ways to increase your credit card limit:
Wait for a pre-approval letter: If you receive one of those preapproval letters in the mail, you can follow the instructions and accept the higher credit limit.
Online: Most major credit card providers have an option to request a credit limit increase through their online banking portal. You may be called by a representative to verify details like your income.
Over the phone: You can also call the toll-free number for your lender and request an increase. If you have any concerns that your financial information may not be up to date, this is your best option.
If Your Credit Limit Increase Is Denied…
Even if you have all your ducks in a row, your credit limit increase request could be denied. If this is the case, you can ask your lender why they’ve denied your request. The answer may be a simple misunderstanding, which can be easily corrected.
But if your card issuer denied you a credit limit increase, despite your good credit score and annual income level, you might consider taking your business elsewhere and applying for a new credit card from a different issuer.