If you regularly use a credit card, you may have wondered what it would take for your lender to increase your credit limit. In many cases, the answer is simple — all you have to do is ask.
Under the right circumstances, a credit limit increase could benefit your credit scores. But how does the process of raising your credit limit work? And are you a good candidate for additional credit? Here’s what to expect when asking for a credit limit increase.
If you want to get loans and credit cards with the best terms, you need to have a good credit score. As a result, a lot of people are curious about whether or not actions like asking for a higher credit limit could hurt their scores. In this article, we’ll look at how asking for a higher credit limit affects your score and give you some smart credit management tips.
How Credit Scores Work
First let’s quickly review the factors that make up your credit score. The FICO credit scoring model examines these five main categories
- Payment history – Are you paying your bills on time?
- Credit utilization – What percentage of your total credit limit are you using?
- Length of credit history – How long have you had credit accounts?
- New credit inquiries – How many new accounts have you opened recently?
- Credit mix – Do you have experience with different types of credit like cards and loans?
65 percent of your score is based on your payment history and credit usage. There are two parts to your credit report: the number of new inquiries and your overall credit mix. The length of your credit history is 15%.
Hard vs Soft Credit Inquiries
When you apply for new credit, the lender will check your credit report to evaluate your application. This results in a “hard inquiry” being recorded on your report. Too many hard inquiries in a short period can negatively impact your score.
However, a “soft inquiry” doesn’t affect your score at all. Soft inquiries are made when you check your own credit or a lender pre-qualifies you for an offer. Requesting a credit limit increase may result in either a hard or soft inquiry, depending on the bank.
The Effect of Credit Limit Increase Requests
Here are some important things that could happen to your credit if you ask for a higher limit:
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Hard inquiries: If the bank conducts a hard inquiry to review your request, your score could drop a few points temporarily. But one inquiry alone likely won’t significantly damage your score.
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Soft inquiries: Your score won’t change at all if the bank only does a soft pull, or looks at your account history with them.
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Denied requests: Denials after a hard inquiry could make further requests in the short term more damaging. Too many in quick succession looks risky.
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Higher limits and utilization: As long as you don’t increase spending significantly, a higher limit could improve your utilization ratio and scores.
Tips for Managing Your Credit Score
Here are some tips to keep your credit score in excellent shape if you request a credit limit increase:
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Only request an increase when you have a genuine need for the higher limit. Don’t just request more available credit for no reason.
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Ask your card issuer if they do a hard or soft pull first. If it’s a hard inquiry, consider if the request is worth it.
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Don’t open too many new accounts rapidly. Space out requests over time.
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Make sure you can manage the higher limit responsibly and not rack up more debt.
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Pay balances in full each month to keep credit utilization very low, 10% or less if possible.
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Monitor your credit with a free service to stay on top of changes.
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Maintain positive credit habits, like paying all bills on time every month.
Being smart about credit limit increase requests and managing higher limits responsibly will keep your credit score in excellent shape. Check your credit reports regularly and aim to improve areas like credit utilization. With good habits, an occasional request likely won’t hurt your score much, if at all.
Why are credit utilization rates important?
Is there any reason you would want to increase your limit if you don’t need access to more credit right now? The answer may be yes, and it has to do with something called your credit utilization rate. Generally expressed as a percentage, your credit utilization rate represents the amount of revolving credit you’re using divided by the total credit available to you. A rate higher than 30% can damage your credit scores.
So, if you’re looking to improve your credit scores in advance of a big financial commitment — applying for a mortgage, for instance — then decreasing your credit utilization rate can have a major impact. To that end, you can (and should) try to pay down the debt you already owe, but you can also ask for a credit limit increase. By raising the total amount of credit you have access to, you’ll decrease your credit utilization rate and may see an increase in your credit scores.
When should you try to increase your credit limit?
There are many reasons a person might consider asking for a credit limit increase, but it’s often to gain access to more credit than they were granted originally. However, it’s important to seek out additional credit only if you have the means to repay what you plan to borrow.
You may be a good candidate for a credit limit increase if you’ve recently received a raise or changed to a job with a higher salary. You might also qualify if you have a history of making full, on-time payments to your account, as this sort of behavior demonstrates that you are a responsible borrower. Additionally, you’re more likely to be approved if your credit scores have recently improved, especially if they are higher than 670.
Does Requesting a Credit Limit Increase Hurt Your Score?
FAQ
Does requesting a credit increase hurt your credit score?
Requesting a credit limit increase can slightly lower your credit score in the short term due to a hard inquiry on your credit report. But the effect is usually small (less than five points) and short-lived; it might come back within a few months.
How many points does my credit go down if I ask for an increase?
Each hard inquiry has a different effect on your credit score, but according to FICO, your score will usually drop by less than 5 points after you apply for a new credit card or ask for your credit limit to be raised.
Is it a good idea to ask for a credit limit increase?
This can be a good idea if you don’t have increased income but want to explain your need for more credit and provide reassurance that you can repay it. When it comes time to make the credit limit increase, make sure you have the following handy: Annual income. Employment status.
Does requesting a credit increase hurt credit one?
And since a credit limit increase means an increase in your total available credit, it may raise your credit score. However, the type of inquiry your card issuer uses before approving your credit line increase may temporarily lower your credit score.