How to Increase Your Credit Limit

How to increase your credit limit
How to raise your credit score

Credit limit is a very vital part of an individual’s financial life. A credit limit increase gives you more purchasing power and can reduce the effect of bad credit debt on your credit score when properly utilized. It can give a major boost to your credit score.

Requesting a credit limit increase is quite easy than people make it seem to be. Let’s look at how to increase your credit limit, how it works, how you can raise it without even asking.

How to Increase Your Credit Limit

Every credit card issuer has guidelines and procedures they follow before they can approve a credit limit increase.

Essentially, there are 3 ways in which your credit limit can be increased

Requesting For a Credit Limit Increase from Your Card Issuer

Generally speaking, requesting a credit limit increase from your card issuer is the most used method. And it’s quite simple.

You can request a credit card limit increase from your card issuer in 2 ways

  • Apply for a credit limit increase online: You can quickly request a credit limit increase using your online account. Simply log in to your online account, look for the menu and click on “Credit limit increase”. Then you will be required to submit some personal financial information which will be used by the lender to evaluate your eligibility for the credit limit increase. This personal financial information will include your updated income or monthly housing expenses.
  • Apply for a credit limit increase over the phone: You can also request for credit limit increase by calling the toll-free number (either posted at the back of your card or on your monthly bill). Some card issuers will have a prompt for requesting a credit limit increase. If there is not, choose the option to speak to a customer representative and request for credit limit increase.

Automatic Credit Limit Increase

Some credit card issuers automatically increase your credit limit when you update your improved income report, and as you handle your credit responsibly.

That entails you using only a certain percentage of your total credit limit, not going over your credit limit. And making minimum payments on time each month.

Many credit card providers periodically review your account and automatically increase your credit limit when you meet their criteria of credit limit increase.

Accepting Lender’s Invitation

Accepting a lender’s invitation is another method of increasing your card limit. Some credit card issuers after periodically reviewing your credit file don’t automatically increase your credit limit. Rather they approach you for a potential credit limit increase.

They send you an invitation to increase your credit limit either through an email or online account notification. So always be on the lookout for an email or online notification from your lender.

Read on to know how credit limit increase works

How Increase in Credit Limit Works

When you apply for a credit card and it gets approved, your card comes with a pre-set credit limit. But as you manage your card responsibly and stay below a certain percentage of your limit, your card issuer may grant you an increase in credit limit.

Each card issuer has its criteria for granting credit limit increase as stated earlier. You have to meet these criteria to qualify for an increase in credit limit.

How to Qualify For a Bigger Credit Limit?

Generally for you to qualify for a bigger credit limit, you should be a cardholder for at least six months and should not have requested an increase in the past six months. Other criteria include:

You’ve been a responsible cardholder: This means paying your bills on time, paying extra to minimize your balance monthly and keep it below a certain percentage, not going above your card limit when making purchases with the card. By so doing you’re boosting your chances of qualifying for a bigger credit limit.

You have a good income-to-debt ratio: Having an increased income is another way of getting qualified for a bigger credit. You have to make sure you have a great income-to-debt ratio to be able to qualify for a higher credit limit. Meaning that your income should by far surpass your debt and monthly housing expenses. Your card issuer is likely to ask about your income report. So be prepared in case you are being asked.

Your Credit is in good shape: Ensure that your credit utilization, payment history, and other factors that contribute to your credit score are in great condition across all your credit accounts. This is one of the criteria to qualify for a bigger credit limit.

Increased Security Deposit: If you’re using a secured credit card, you will want to consider increasing your security deposit to qualify for a higher card limit. The best way to increase your limit on a secured credit card is to call customer service and ask for the steps to take. Because each card issuer has different procedures.

Benefits of Increasing Your Credit Limit

  1. More purchasing power
  2. Improved credit Utilization
  3. Better terms in the future

More Purchasing Power

A higher credit limit gives you more purchasing power. Meaning that you can purchase more with your credit card and still maintain good credit utilization. Having a good knowledge of how to use your credit effectively will make this a great advantage for you.

Improved Credit Utilization

One of the most important factors that are taken into consideration when determining your credit score is your credit utilization. This makes up to 30% of your score and represents the amount of credit you have versus the amount of credit you’re currently using.

We recommend you keep your credit utilization under 30% whenever possible. For example, if you have $10,000 in available balance and carry a balance of $2,000, your credit utilization is 20%. Which is really good. Let’s say you use up to $7,000 of your available balance, you will be going above the 30% credit utilization. Now, this is where an increase in credit limit comes in. It is much easier to keep your credit utilization low with a higher credit limit. Thereby improving your credit score.

 Better terms in the future

One of the biggest benefits of a higher credit limit and having a high credit score at the same time is that it may actually improve your borrowing term in the future. The higher your credit score, the higher the chances of you qualifying for a low-interest rate and better terms. Because card issuers will see you as a good risk. Knowing how to increase credit card limits now may save you money down the road when you apply for a new credit card or a mortgage or auto loan.

Risks Associated With Increasing Your Credit Limit

  1. Higher risk of credit card debt
  2. May affect your credit score
  3. Can affect your future applications

Higher Risk of Credit Card Debt

A higher credit limit means more purchasing and this can lead to huge credit card debt if you don’t manage your card responsibly. If you have issues with overspending and have always come close to your credit limit, you’re likely to amass credit card debts

The best way to avoid this is by making a budget and tracking your spending. You should set a goal to always pay off your full credit card balance each month. If you don’t carry over balances to the next month, you won’t accumulate credit card debt or interest charges.

May Affect Your Credit Score

As stated above, when you apply for a credit limit increase and your card issuer performs a hard inquiry, your credit score temporarily drops. It’s not that huge as your credit score drops by only a few points.

Also, when you have a higher credit limit, you have a greater risk of credit debt which can have a great impact on your credit score. You would want to manage your cards responsibly.

How is your credit card limit determined?

Your credit limit is determined in one of two ways. The credit card either comes with a predetermined credit limit set by your card issuer or the card issuer may offer you a credit limit based on your credit score and credit history. The latter is shows the necessity of having a strong credit history.

Whenever you apply for a new line of credit, lenders will take into consideration how you’ve used your previous credit opportunities when deciding whether to give you the requested line of credit, how much credit to offer you and what kind of interest rate you’ll receive.

This is one reason why it’s a good idea for you to request a credit limit increase, as your future card issuers may consider your current credit limits when determining what credit limit to offer you.

By showing them that you responsibly managed an increased credit limit without maxing out your cards or falling behind on payments, you’ll be more likely to secure better terms and interest rates with your future lenders.

If you believe you can handle the increased responsibility of a larger credit limit, it’s great you apply for one.

Does requesting a credit limit increase impact credit score?

Requesting a credit limit increase can have an impact on your credit score. When a credit card issuer wants to review your credit limit increase application, they either use the soft or hard pull inquiry. If the request could affect your credit, the card issuer will let you know whether to proceed or not.

When a lender pulls your credit file, it’s known as a hard credit inquiry. This makes your credit score drop temporarily. For most consumers, one hard inquiry takes fewer than five points off their FICO® Score, the most widely used type of credit score. You don’t have to worry much as this is just a temporary drop. As you use your card responsibly, your credit score bounces back.

Not every lender pulls your credit report when you ask for an increase in your card limit. If yours doesn’t, then your request won’t have any impact on your credit score.

Why Is My Credit Limit Increase Denied?

When you apply for an increase in credit limit with a good credit report and enough income to support your credit limit increase. You may find out if your request is approved immediately. If not, you will be notified a few days later usually via email.

Your application may be denied for a few different reasons. One of which can be that your account may be too new, it may be too soon since the last change in your credit limit, your income may be too low to qualify you for an increase, or you may have an account that doesn’t receive credit limit increases, such as a secured credit card account.

Negative information in your credit history can also lead to your credit limit increase request being denied. If that’s the case, an adverse action letter will be sent to you explaining the factors, which could include high credit card balances or recent delinquencies.

Take note of those factor(s) stated in the adverse action letter. Ensure to improve your credit in those areas, wait a few months, and then try again.

How much of a credit increase should I ask for?

When requesting an increase credit limit , you would want a raise that you can easily pay off your balance and be realistic in your request. For example, if you have a total credit limit of $3,000, it wouldn’t be realistic requesting for a credit limit of $20,000 at a time. You can gradually over time.

Is it bad to increase your card limit?

Raising a credit limit isn’t a bad idea if you can responsibly manage a higher credit limit. Instead, it can boost your credit score and build your credit history.

Do credit cards automatically increase the limit?

Some credit card issuers automatically increase your credit limit when you update your improved income report, and as you handle your credit responsibly.

How often should I request a credit limit increase?

The more you request for a credit limit increase, the less likely you’re going to be approved. Giving a space of 6 months after each request will improve your chances of being approved.

Should I increase my credit limit even if I don’t need it?

If you can manage a credit card responsibly, applying for a credit limit increase even when you don’t need it is a good decision. Other than more purchasing power, a higher credit limit helps you keep your credit utilization low and boost your credit score

How much of my credit limit should I use?

The 30% rule states that it’s best to keep your credit utilization ratio below 30%. For example, if your credit limit is $1000, you should try to keep your debt below $300.

Is it easier to get a credit card or a card limit increase?

The process of increasing your card limit is much easier than the process of getting a new line of credit especially if you’re a first-time applicant with no credit history.

Conclusion

A higher credit limit can be that thing you need to boost your credit score while having more purchasing power. But before applying for a credit limit raise, you should check yourself and be sure you can responsibly handle a credit limit increase.

Read Also:

What are Factors that Affect your Credit Score

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