Requesting a credit increase can trigger a hard inquiry on your credit report. This can affect your credit, especially if you have a short credit history and a limited number of accounts. In most cases, the impact of a single hard inquiry will be minor and temporary. Over the longer term, increasing your credit limit and keeping your spending the same can improve your credit utilization ratio, which may have a positive impact on your credit.
How Requesting a Credit Increase Can Affect Your Credit
The process of asking for a credit limit increase can affect your credit, even if your request is refused. Your card issuer may check your credit report to determine whether you can manage a higher limit. This will leave a hard inquiry on your credit report.
Hard inquiries can affect your credit. The impact of a hard inquiry will vary based on your credit history, age of your credit accounts, and other factors.
Multiple hard inquiries in a short time may have a greater impact on your credit. If you have generated other hard inquiries recently, you may wish to delay a credit limit increase request to avoid multiple hard inquiries on your credit report.
If you are considering applying for a major loan like a mortgage or car loan, you may wish to postpone asking for a credit limit increase until after you have closed a deal on your new loan. Even a small drop in your credit could affect the terms that a lender is willing to offer.
If your credit limit increase is approved, that larger limit can help or harm your credit even if you get a hard inquiry. The impact will depend on the way you use your new credit limit.
If your credit limit increases and your spending remains the same, your credit utilization rate will be lower. Credit utilization is the percentage of your available credit that you use. It’s an important component of a credit score. A low credit utilization rate is good for your credit. Many experts advise keeping your credit utilization rate below 30%.
For example, if your credit limit is $2000 and your average balance on your card is $1000, your average credit utilization rate is 50%. If your limit is increased to $4000 and your average balance stays the same, your utilization rate will drop to 25%.
To get the benefits of a higher credit limit you will have to control your spending. If you increase your spending to match your new limit, you will not help your credit utilization. If you increase your spending without increasing your income, it may be difficult to pay your credit card bills. Piling up a balance or missing a payment could harm your credit.
When to Ask for a Credit Limit Increase
Your request for a limit increase will probably generate a hard inquiry on your credit report, whether or not it is successful. You don’t want that to go to waste. Choosing the right time to ask for a limit increase can raise your chances of approval.
Signs that it’s a good time to request a credit limit increase:
- Your income has increased. If you’re earning more money than you did when you got your card, your issuer has a clear reason to raise your credit limit.
- Your credit score has gone up. A better credit score is evidence of financial responsibility and a sign that you’re managing your credit well.
- You have a good payment record. If you usually pay your balance in full every month, your request for a higher limit is likely to be approved.
Signs that it might be better to wait:
- Your income has decreased, or you’re between jobs. Your request for a credit limit increase is less likely to be approved if your income is lower than it was when you got your card.
- Your credit score has dropped. If your credit is lower than it was when you got your card, your issuer may be reluctant to increase your limit.
- You’ve had problems paying your credit card bill. If you’ve been carrying a large balance from month to month or if you’ve had late payments, it’s probably not the best time to ask for a higher credit limit.
- You’ve applied for new credit recently. If you have just applied for a new card or asked for limit increases on other cards, it may look like you’re overextending your credit.
How to Request a Credit Limit Increase
Always check your credit report before asking for a limit increase. If your credit record looks good to you, it may look just as good to your card issuer.
Think about how you will explain your request to a customer service agent. Make notes of the main points you will make. Be ready to provide your address and Social Security Number and to discuss your employment status, your income, your housing costs and the size of the increase you’d like to request.
Use the phone, even if you have an email option. You will want to ask questions.
Ask the customer service agent if your request will trigger a hard inquiry on your credit report. Some issuers will not make a hard inquiry if the request is below a certain level. If that’s the case, consider keeping your limit increase request to that level, especially if you have a thin credit file or you’ve had other hard inquiries recently.
Ask whether your request will trigger any other restrictions. Some issuers may require you to wait for a fixed period before requesting another increase.
Once you’ve made your request, your creditor will most likely get back with you with one of three decisions:
- Approval of the credit limit increase
- Rejection of the proposed credit increase
- Approval for a lower credit increase than you initially proposed (if you asked for a specific amount increase)
Some credit issuers will even increase your limit automatically after a period of timely payment. You should still be prepared to convince the issuer that you deserve an increase.
Consider Your Reasons for Wanting a Limit Increase
There can be very good reasons for asking for a credit card limit increase. If you’ve had the same card for some time and your income and credit have improved, you may still be carrying a low limit that hurts your credit utilization ratio. Increasing your limit can improve your credit utilization.
A higher credit limit also brings risks. A higher limit can bring the temptation to spend more. Remember that a higher limit will only improve your credit utilization if you keep spending on your card at the level it was before your limit increase.
If you increase your spending to match your new limit, you won’t help your utilization. You may even end up hurting your credit if you spend more than you can afford to pay. Requesting a limit increase can be a good move for your credit and your finances, but you’ll need the discipline to use your new limit wisely.
