Increase Credit Limit
There are many sites out there that have bits and pieces of information on how you can increase your credit limit, or why that might be a good idea. However, there is no comprehensive look at how, when, and why you should look at increasing your credit limit. That is what I am trying to do here. If you see anything in error, or see anything that you believe could be added to make this more exhaustive, please do not hesitate to do so, either by leaving a comment on this post or using the contact form on this site. Thank you!
Why increase your credit limit
Before we look at how or when to increase your credit limit, we need to come up with a reason why, or why not to. If you don’t know some good reasons for why you should do this, you are unlikely to follow through with it. Here are some good reasons to request a credit limit increase:
- It can help your credit score – This is the biggest reason that you should look at increasing your credit limit. 30 percent of your credit score can be dependent on your credit utilization, or what percentage of your credit that you are using.
To use real numbers, let’s say that you have a credit limit of $1,000, and you have a $500 balance on the card. Your credit utilization would be 500/1000, or 50%. This is a very high percentage, and would likely hurt your credit score. However, let’s say you were able to increase that credit limit to $2,000, while keeping the same balance. Suddenly, your credit utilization would be cut in half – 500/2000 = 25%. A good rule of thumb is that you should aim to have a credit utilization rate of 10% or lower. Obviously, the higher your credit limit, the more achievable this will be.
In short, you want to owe as little money as possible relative to the amount of money that you could owe. There are two ways to do this… paying down debt is the best way, but that is not always feasible. Another way is to increase the amount of borrowing power you do have (though this does not mean that you should spend that extra amount, or else you will be even worse off, which should go without saying).
- You have more credit in case of an emergency – If you are responsible with your credit card and paying it off every month, a higher credit limit could provide you with peace of mind that if an emergency were to come, you would have more credit available to you. Ideally, of course, you would never have to use it, but it can be nice to know it’s there.
If your limit is pretty low, the higher amount could be beneficial just for being able to make larger purposes. It all comes down to being responsible… if you are responsible and pay off your balance, it can be very helpful in many ways to have that extra money available.
- Increase your rewards – Again, this is a good reason only if you are responsible with your card and paying it off each month. Let’s say you have a rewards credit card with a $1,000 limit. If you are going to be making a large purchase, you might not be able to fit it all on the card, thereby decreasing the amount of rewards you could get. An increased credit limit would help in this situation, because you could then maximize the rewards. This probably does not come up all that often, but it could, especially if you are making purchases for a business with the card.
- If you NEED the extra money, that is NOT a good reason – If you are looking at requesting an increase because you find yourself constantly in danger of going over the limit, this is NOT a good reason to try to increase it. This is a good reason to look at your spending. If you are desperate (and they will be able to see this), then they will likely turn you down.
How to increase your credit limit
Now that we have covered some of the good and bad reasons for increasing your credit limit, let’s look at how you might actually get it done.
- Call the credit card company – This should be obvious, but you will have to make the first move and give them a call to ask for an increased credit limit. While the credit card company may occasionally give you an increase without you asking, most likely, you will have to take the initiative. Some companies may have online forms for this, but the easiest way is just to give them a quick call.
- Have a good reason – This goes hand in hand with the first section, but have a good reason ready for why you are asking for this, because they will ask. The last time I did it, I was going to be going on vacation a few months later, so I told them I needed the higher limit for that. Have a good reason, even if it is that you want to improve your credit score. Again, if you are desperate, they will know.
- Don’t ask too soon – If you have just opened the card within the past few months, it may be too soon. It is best to wait at least six months before you inquire about an increase. Six months seems to be the rule of thumb for this.
- Don’t ask for too much – This one is obvious… if you ask for too much and get declined, obviously you have missed your chance. But if you ask for too low of an amount, you might be turning down extra credit that you could have had. It is an obvious catch-22. A good rule of thumb is that you should ask for around 10-25% of your current credit limit.
- Make sure you pay your bills on time – It almost goes without saying that if you are consistently paying your bill late, the creditor will be less likely to increase your limit. If you help them by being a good customer, they will be more likely to help you. It is in their best interests to raise your limit, because that is just more money that you could spend with them. But if you look like you are risky at all, such as by making late payments, they won’t want to take the risk.
- Build your case – Have your case ready, with all of the positives that you can think of for why they should give you an increase. Good reasons include any increase in income you have had, a long history of paying your bill on time, the length of time that you have had the card, a low overall credit utilization, and possibly the lack of other debt in your life (if you have just finished paying anything off). If they provide any pushback, you have to be able to clearly state why they are making a wrong decision.
When to increase your credit limit
Of course, even if you know why and how to ask for this, you still have to know the right time, as timing is everything. Here are a couple of tips.
- Not right before you plan to apply for a large loan – Often, requesting an increase will result in a hard credit inquiry, which will hurt your credit score in the short term (don’t worry, the long-term effect of better credit utilization would more than make up for the short term dip). Thus, if you plan on applying for a mortgage or car loan within the next 6 months to a year, I wouldn’t request an increase.
- Well before you need it – Again, this goes back to the fact that if you are desperate, the creditor will not increase your limit. If you think there will be a time in the future where you will need that extra credit, the time to request an increase is before that. Obviously, it’s tough to predict, but you have to be able to look ahead as best as possible.
Also, as I have said throughout this article, don’t ask for an increase just because you need a little bit of extra money to spend, and you are getting close to your limit. That is a good way to get yourself into big time financial trouble.
So, there you have it! All of the reasons you should increase your credit limit, how to do it, and when to do it. I hope you found this helpful!