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The Truth About Credit Limit Increases

If you received your first credit card around the time you started college, or when your credit score wasn’t that great, you probably didn’t have a high spending limit. Over time, you may have realized that your spending limits did not cover certain purchases you needed to make. If so, it may be time to ask your credit card issuer for a credit line increase. However, this comes with its ups and downs. First, you need to determine why you need an increase in the first place. If it’s only to buy yourself things that you can’t afford to pay with cash, stop right there. You will only get yourself into trouble with debt that will take you years to pay off. Second, make sure that you’ve been a good customer for at least 6 months with on-time payments and that your cards aren’t maxed out. Otherwise, your chances of getting approved will be very low. Let’s learn more about the pros and cons of credit limit increases.

Benefits
Having a high credit limit will help you have financial flexibility, and it may help your score as well.
If you’re trying to use one card for all of your bills and expenses, your limit may not be enough. You may also be trying to make a big purchase on your card, and just a little more spending limit will allow the transaction to go through. If you have a higher spending limit, you can enjoy your card’s benefits, such as cash back, on all of your purchases.
A higher credit limit also means that you will have a lower credit utilization ratio. This will definitely help improve your credit score. FICO looks at your credit utilization in two ways. The first is your per-card utilization, which is how much you owe on an individual card, compared to the credit line available on that card.
The second is your aggregate utilization, which is the amount you owe on all your cards, compared to the sum of all credit lines.
This is how FICO determines “amounts owed” in its scoring, which makes up 30% of your credit score. Your credit utilization will go down, and your score should increase if you maintain the amount of credit in use and ask for a credit line increase.

Disadvantages
There are some potential disadvantages, though. So, you should consider these before you go on a credit limit increase frenzy.
Credit issuers may pull your credit report to evaluate your existing credit. These credit inquiries can either be hard pulls, which will affect your credit, or they can be soft pulls, which will not affect your credit. Too many inquiries in a short amount of time will knock some points off your credit report. If you’ve had a hard pull on your credit report recently, it may be best to wait a while. You can always call your credit issuer to confirm if they make a hard inquiry on your credit report when considering a credit line increase.
Increasing your credit limit can also increase your debt. Even though you’ll have the power to make bigger purchases with an increased credit limit, it can put you at risk of buying things you can’t really afford. You’ll end up racking a ton of interest charges if you can’t pay your balance off. Make sure that you never spend more than you can pay off in a month.
A credit limit increase can be a great way to reduce your credit card utilization and improve your score. However, it can also work against you if you don’t know how to budget yourself and stay organized. So, make sure that before you ask for a credit limit increase, you take all of this into consideration. If you know how to spend responsibly and have good credit, you shouldn’t have an issue increasing your credit limits, and in return, you’ll have more financial flexibility.

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