- Increasing your credit card’s credit limit, when done responsibly, is an effective way to improve your credit score.
- If you use your credit card responsibly, your credit limit will usually increase automatically every six to 12 months up to a maximum.
- The two main ways to increase your credit limit quickly are to ask your current credit card company for an increase or open a new line of credit.
Looking to get a higher credit limit on your credit card? Before you take any further action, ask yourself a simple question: why?
If you’re only interested in expanding your purchasing power so you can get the latest electronic device or a trendy new pair of shoes, you might want to think again. On the other hand, if you’re after a higher spending limit as a means to improve your credit score, you’re definitely onto something.
Your credit limit is the maximum amount you can spend on your credit card(s). When you’re just starting to build your credit, your credit limit may be only a few hundred dollars. However, as you grow your income and credit history, your credit limit can often reach into tens of thousands of dollars.
While you might have thought that having a higher credit limit is important solely for the temporary purchasing power it unlocks, that limit also has a drastic impact on your overall credit score. Increasing that limit can have a meaningful positive impact on your financial health — but only if done wisely.
Why Does Your Credit Limit Matter?
Your credit score is an integral component in your financial life, as it measures your ability to manage borrowed money. With a high credit score, you have better access to the best interest rates on mortgages and car loans, as well as lower rates on insurance for any house or car you decide to purchase. And with access to those better interest rates, over the course of time, you can save yourself thousands in interest payments.
Having a good credit score is crucial to making your money work for you (and not the other way around). This is where the amount of credit available to you can play a big role, as it affects one of the most important areas of your credit score: your credit utilization.
The three credit bureaus — Equifax, Experian, and TransUnion — use one of two credit scoring models to come up with your credit score. Each of the scoring models — FICO and VantageScore — take into account five main areas of your financial history to determine whether you are trustworthy with borrowed money: payment history, credit utilization, length of credit history, types of credit, and new credit/inquiries. However, they weight each category differently:
- Payment history: 35%
- Credit utilization: 30%
- Length of credit history: 15%
- Types of credit: 10%
- New credit/inquiries: 10%
- Payment history: 40%
- Credit utilization: 20%
- Depth of credit: 21%
- Balances: 11%
- New credit/inquiries: 5%
- Available credit: 3%
While the calculations and factors In each of the scoring models are kept secret, credit utilization is the second most important factor and accounts for 30% of your FICO score and 20% of your VantageScore credit score. And the lower your credit utilization, the better for your overall score. This is where increasing your credit limit can be advantageous.
For instance, consider the following two scenarios:
- Ruby has one credit card with a $1,000 credit limit. Her current balance is $500, and as a result, her credit utilization is 50%.
- Huey also has one credit card. He also has a current balance of $500, but his credit limit is $2,000. His credit utilization is much healthier at 25%.
As you can see, by increasing your total credit limit, you can quickly lower your credit utilization, help improve your credit score, and reap the benefits that come with a great score.
Before You Increase Your Credit Limit
While a credit line increase can have a positive impact on your credit score, you also need to make sure it’s the right move for your personal financial situation. Yes, the higher your credit limit, the easier it is for you to maintain a healthy credit utilization ratio. However, if you don’t believe you can manage that credit responsibly, stop here.
Only try to increase your credit limit if you know that you won’t spend beyond your means. Your history of on-time payments is even more important than your credit utilization rate.
How Can You Increase Your Credit Limit?
If you know you can manage a credit increase responsibly, there are three primary ways to go about doing so. There are pros and cons to each, but in the end, the one you choose will depend on your specific circumstances.
Method 1: Wait for a Credit Limit Increase
This first method is the easiest way to get a credit limit increase. Most credit card issuers will automatically increase your credit card limit every six to 12 months (up to a maximum determined by the company). All you really have to do is wait.
However, to improve the chances of an increase from your credit card company, you should first establish a positive payment history. Always pay your balance on time, and preferably in full, to assure the credit card issuer that you can responsibly pay back your balance, even if your credit limit was higher.
All this method requires is patience and discipline. If you wait for your credit card issuer to increase your credit limit automatically, it won’t generate a hard inquiry on your credit report. Inquiries into your credit history contribute 10% of your FICO score and 5% of your VantageScore credit score, so minimize them by applying for credit only when absolutely necessary.
Method 2: Ask to Increase Your Credit Limit
Although method two is slightly more work on your part than method one, it is still pretty straightforward: all you have to do is ask.
If you already have a credit card in good standing that you use often, you can usually call the phone number on the back of your card to speak to a customer service representative, or visit your credit card provider’s website to request a credit limit increase.
When considering your increase request, the credit card company will look at four primary factors:
- The overall condition of your credit report.
- Your current annual income.
- Your recent credit card spending and overall debt-to-income ratio.
- Your payment history on the card.
Once they’ve looked through your credit history, the credit card company will either agree to increase your credit limit, provide a counteroffer with a lesser increase than what you requested, or deny your request altogether. However, that last scenario is relatively rare. In fact, your chances of success with this method are also pretty high, as Experian reports that 89% of cardholders who requested a credit limit increase received one.
As a note, while this method is much faster than the first option, that speed comes with consequences. When you request a credit limit increase directly from your credit card provider, it results in a hard inquiry on your credit history. That inquiry could potentially lower your credit score in the short run, but the slight decrease is usually more than made up for by the ultimate benefit you can experience by lowering your credit utilization ratio.
Method 3: Open a New Credit Card Account
The final option for attaining a higher limit is by opening a completely new credit card account. You might choose to pursue this option if you don’t want to wait for your current credit card provider to increase your limit, or if your credit limit increase request was denied. You could even pursue this method in conjunction with the other two if you want to increase your credit limit quickly.
That said, you should only apply for a new card if you know you can handle the additional spending power responsibly. If you can pay the full balance on all your credit cards on time every month, you can probably handle a new card.
And one more caveat before you decide to open a new account: It may actually temporarily lower your overall credit score. Just as with method two, when you open a new account, the credit card issuer will have to do a hard inquiry on your credit history. That inquiry can result in a ding to your credit. However, the increase in your credit limit — and the potential for substantially reducing your credit utilization ratio — will likely boost your score in the long run.
There are also other benefits to having multiple credit card accounts. For instance, having several credit cards with low utilization can further improve your credit score. By designating small recurring payments to different cards — maybe your monthly Netflix subscription to one and your home or renter’s insurance to another — and paying the balances off each month, you can ensure ongoing activity with low utilization. Also, with multiple cards, you have the option of charging higher cost transactions to cards with rewards, such as cash back, hotel stays, or airline miles.
Which Credit Card Should You Pick?
Obviously there are pros and cons to opening a new credit card account, but if you think the pros outweigh the cons — which credit card should you choose? Although the answer to that question will depend on your lifestyle (if you’re a homebody, a card with airline miles likely isn’t for you), there are a few things you might want to consider to help narrow down your options:
- Does the card have an annual fee?
- What is the Annual Percentage Rate (APR)?
- What are the penalties for late payments?
- Are there any transaction fees associated with using the card?
While the above considerations are helpful, just remember, the best credit card is the one you can pay off each month.
Build Healthy Financial Habits Now
Increasing your credit limit can be an effective means of improving your overall credit score — and as a result, your overall financial health. But remember that the increase in credit comes with increased financial responsibilities.
In the end, living within your means is the best thing you can do to ensure a happy and healthy financial life. When you are disciplined with your saving and spending, you are building good financial habits that will pave the way for a secure future — one where your credit limit and credit score will likely go up automatically.