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How A Credit Limit Increase Affects Credit Score

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When talking about a credit limit increase, many people are concerned that this could have a negative affect on their credit score. Is their concern justified? Yes and no.

Asking for an increase on your credit limit can negatively affect your credit score in the short-term. Because it can cause a hard credit inquiry, that will cause the score to dip. That is why I would not recommend asking for an increase any time near to when you will be applying for a mortgage, car loan, or anything else where your interest rate will be dependent on your credit score.

However, in the long run, the better credit utilization from a higher credit limit will more than make up for that short term dip. Thirty percent of your score is determined by the amounts that you owe, and the percentage of amounts that you owe compared to your limits. Assuming you do not spend in proportion to your increase (a not insignificant point), the higher limit will lower your credit utilization percentage, which will increase your score.

So in summary… asking for a increase to your credit limit will hurt you in the very short term, but help you out in the long term.

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