How to Increase Credit Limit
Before asking “How do I increase my credit limit?” it is probably best to ask yourself “Should I increase my credit limit?”
There are times it is not such a good idea, especially if you are already struggling with credit card payments. There are other times it is a very good idea, such as finding a solution for an urgent financial problem or even for improving your credit score.
And you may not have to do anything at all. Sometimes, all you have to do is sit back and wait for the bank to automatically raise your credit limit.
Some lenders won’t consider a raised limit until you’ve had the card for six months or a year. Every now and then, they’ll run a check to see what your account activity looks like. If they like what they see, they may increase your credit limit without being asked.
If needed, you can take the initiative and contact your bank or credit card company and ask for a credit raise. Highlight all the reasons you deserve one. Remind them of how faithful you’ve been at making payments or let them know about a recent raise in salary.
The bottom line: If you want to increase your credit limit, you have to become more appealing to creditors. Consumers with high credit scores, those who pay their bills on time and maintain clean credit histories, are very appealing.
What Is a Credit Limit?
A credit limit is the maximum amount you can borrow against each line of credit. If you have a credit card with a limit of $3,000, you can’t spend more than $3,000 on that credit card. Each card in your wallet has a credit limit.
The average credit limit varies, depending on your credit score. If you have a bad score, you’ll be lucky to get $2,000. A good credit score will reward you with an average limit of around $7,000. Those with the best credit scores are treated to average limits of around $11,000.
A low credit limit may feel like a constraint but starting off with too high of a credit limit is like learning to swim in the deep end of a pool. There is more room for error and less room for forgiveness if you overspend your budget.
Think about how you plan to use (and repay) the extra credit before plunging into a whirlpool of potential headaches. There are plenty of valid reasons to raise your credit limit, like increasing your credit utilization rate to raise your credit score and improving your track record to appeal to future lenders.
How Is Credit Limit Determined?
There are two interconnected factors that determine how high your credit limit will be. Some cards come with a preset credit limit. Other lenders determine individual credit limits based on your credit history and your credit score.
This is why your credit history is so important. Lenders use that history – the record of your past interactions with credit and making payments in a timely fashion – to determine how much credit to offer you and what kind of interest rate you will receive.
How To Increase Credit Card Limit
Paying your bills on time and controlling your spending impulses are the best way to convince the bank or credit card company to take the initiative and raise your credit limit.
But there are other ways to pursue an increase on your timetable.
- Make an online request: Online banking has taken a lot of the personal interaction out of transactions and requests, but that also lessens some of the stress and anxiety. Sign in to your account profile and submit a request. You may have to update your personal information, including your annual income.
- Call your credit card company: The customer service number is on the back of your credit card for a reason. It may be less stressful to make a request online, but many people actually prefer interacting with an actual person. Have your relevant information handy so you can answer any questions about your account and your financial situation. If you meet the bank’s requirements, the representative can submit a request for you. You may even get an answer immediately.
- Apply for a new credit card: This is a direct way to avoid the process of applying for a raised limit and dealing with the intricacies of that. When you think of how many solicitations you get in the mail for new credit cards, it may be very tempting to take that route. But use caution: Managing multiple credit cards, keeping track of purchases, and paying the monthly bills, can be hazardous to your mental and financial well-being. If you’re well-organized and disciplined, a new card could be your solution.
Tips for Raising Credit Card Limits
Yes, there two ways to have your credit card limit raised:
- Wait for your lender to raise your limit
- Request a raise from your lender directly
But here’s the thing. Either way, you can improve your chances of an increase, and your chance for a larger increase, by doing many of the same things. Good credit management is your best argument for a higher limit. That means:
- Only ask for increases on one card at a time: An increased credit request is considered a “hard inquiry” on your credit score, which automatically lowers it a bit. Multiple inquiries look like desperation, which can make your lender anxious. Allowing about two months between requests should diminish the impact of a hard inquiry.
- Pick your best card: That would be the card you use most often, one you’re up to date on paying, and the one with the best benefits.
- Keep your financial/personal information up to date: If you’re asking your lender for something, it’s just good sense to make things as easy as possible for them. Federal regulations require that lenders use up-to-date financial information, such as annual income, employment status and monthly rent of mortgage payment. Have the correct information on hand to improve your chances.
- Try a balance transfer: You can often get a balance transfer card with a zero percent interest rate for a fixed amount of time. Use it to pay down your credit card debt, creating space under your current credit limit. Paying your debt is an almost certain way to make you look better to your lender.
- Pay your bills on time: This is a big one. Missing payments, or making late payments, is a sure way to draw the wrong kind of attention to your account and to lower your credit score. Proving you are a responsible credit manager sends the right message to your lender. Automatic payments are a sound way to make sure your account is current.
- Pay more than the minimum amount: In a perfect world, we would pay our full credit card balance every month. In the real world, that may not be practical. The next best thing is to make more than the minimum payment, which can save you money on interest and improve your credit utilization ratio.
- Monitor your credit: Keeping an eye on your account is crucial to keeping track of payments, purchases, and detecting fraud or other nefarious activity. Some lenders, like Capital One with its CreditWise tool, can help keep tabs on your account and spot unusual activity. (CreditWise is free to everyone, even if you’re not a Capital One customer.)
- Review your credit report for errors: You can get free copies of your credit reports from each of the three major credit reporting agencies. Visit AnnualCreditReport.com to learn how. Make sure your information is current and up to date and there are no errors on your account.
- If you are declined, ask why: This way, you will know what you must do to meet the lender’s criteria and work to improve your credit profile.
When To Ask for a Credit Limit Raise
The best time to ask for an increase in your credit limit is when your financial situation has improved – a raise, a new job with higher pay, other sources of income.
There are other considerations, though. Your lender may not consider a raise limit if your account has not been open long enough, or if you have gotten a raise in the past few months.
Likewise, if you’ve lost your job or suffered some other income reversal, that would not be a good time to ask for a credit limit income. The same is true for people who have failed to make timely payments and maintain a good credit history.
It is always best to pay bills and maintain a positive history with your lenders and other creditors. When that’s not practical, it is recommended that you repair your credit history as quickly as possible.
Some banks will charge a fee to increase your credit limit. If that fee is high – such as 25% of the credit limit raise – you may be better off applying for a new card without such fees or working to improve your credit score until your bank increases your credit limit. It is important to be aware of such fees before you begin the process of applying for a credit limit raise.
How Much to Ask for in a Credit Limit Increase
That decision may be dictated by your circumstances. If you have a major expense, or an urgent need for money to cover emergency costs, you’ll know how much to ask for. Bear in mind that you may not get the full amount requested, and have a contingency plan in place.
Typically, the bank will consider increases from 10% to 25% of your current limit. Anything higher could trigger a hard inquiry on your credit report, and that can in turn lower your credit score.
Why Would I Want a Higher Credit Limit?
The obvious answer – “Mo’ money, mo’ money!!” – may be one reason, but there are some others worth considering when making this decision.
Lower Credit Utilization
Admittedly, this is not as catchy as “Mo’ Money,” but it is still important. What is it? The percentage of available credit that you actually use. If you are approved to use $10,000 but you have only used $1,500, that is a low credit utilization ratio. If you owe $9,000, your ratio is very high, and a lender is less likely to offer you more credit. A low credit utilization ratio can actually improve your credit score.
That’s where an increased credit limit comes in. Paying your debt down is one way to lower your credit utilization score. Raising the available limit is another.
Many credit cards earn cash back or other rewards when you use them. It isn’t cost-efficient to run up your credit card to earn a percentage of the cash or frequent flier miles. But using the card for everyday purchases and then paying it off regularly can add up to worthwhile benefits. So, a higher credit limit gives you more room to operate – but also a deeper hole to dig if you’re not careful.
Better Terms in the Future
It is tough to recognize when you’re struggling to keep up with your monthly bills, but there are strategies that can help you in the long term. Having a low credit utilization ratio can lead to an improved credit score. An improved credit score can lead to better terms and lower interest rates.
Should I Ask for a Credit Limit Increase?
Nobody can answer that question for you, but you can at least get an idea when it’s a good time to go forward with that option. If you opened the credit account last week, it is probably not a good idea to ask for an increased limit (unless you hit the lottery in the interim).
But if you started using a credit card several years and perhaps a couple of jobs ago, now may be the right time. If you get a pay raise, or a better job, or if your credit score is exceptionally good and you have proven yourself a responsible cardholder, your bank may raise your limit on its own.
If not, you may well choose to request a higher limit on your own initiative. It can help you in ways as obvious as more purchasing power and as obscure as an improved credit utilization ratio.
Be mindful that a higher credit limit can affect your credit score, but in a relatively minor way that can be repaired relatively easily.
Work with a Credit Counselor
Understanding credit utilization ratios and how to work with them to improve your credit profile may sound like 3-dimensional chess to most of us who are just trying to pay our bills every month. But that’s OK.
Nonprofit credit counseling can help you level up your game. The first feature to understand is “nonprofit.” There are agencies and organizations that can offer quality counseling at no cost to you. And they are legally obligated to serve your personal interests, not the lender’s.
InCharge Debt Solutions is one such nonprofit counseling agency. They can help with an array of credit issues, especially if you find yourself going over your credit limit, and their trained counselors are equipped with the latest information and strategies to help in any situation. For debt help, it’s a good place to start.
About The Author
Phil Sheridan writes about managing personal debt for InCharge. He spent over 30 years learning about labor negotiations, salary caps, stadium negotiations and a lot of other finance-related matters as a reporter and columnist for the Philadelphia Inquirer and ESPN. Phil will use those experiences to make readers more comfortable about their own financial situation.
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