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There is a little catch with requesting a credit card limit increase: a higher limit can improve your creditworthiness, but an increase can also temporarily affect your creditworthiness. What if the lender rejects your application? You have just hit your credit score for no reason – which may be literally the opposite of what you tried to do in the first place. This ensures that you are approved for a limit increase before submitting an application.
Wait, how does increasing my credit limit improve my credit score?
Credit bureaus base 30% of your credit score on yours Credit utilization rate, which is a measure of how much available credit you are not using (the less you use the better). By applying for a higher credit limit, you can easily improve your score, which in turn makes your credit easier.
To request a credit limit increase, contact your lender either online or by phone (using the number on the back of your card). The downside is that the process often involves a tough query of your credit that can lower your credit by around 5 points, usually for a few months.
How do I know if I am entitled to an increase in the credit limit?
Unfortunately, lenders are somewhat vague about whether or not you will qualify. However, there are ways to improve your chances of a limit increase:
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- Your income or credit has recently increased: Often times, if you make more money or have better balance than the first time you applied for the card, that’s all you need to get a raise.
- Know your financial situation (and be specific): Your lender may want to know information such as your total annual income, employment status, and monthly mortgage or rent payment. In some cases this is verified before the increase is approved. So make sure the information you provide is correct.
- Don’t get greedy: The rule of thumb is to increase the credit line by 10 to 25 percent.
- You paid off your monthly credit on time: You want at least a couple of months of consistent repayments to appear like a trusted borrower.
- Apply if your credit utilization is already low: You don’t want to be desperate for more debt than you already have, so try to limit your debt usage to less than 30% when you apply.
- Plan your request strategically: A hard query will only hurt your credit score for a few months, but that could affect your ability to qualify for low-interest loans. Therefore, consider waiting before increasing the credit limit if you are looking to fund a major purchase such as a home or car. Also, don’t apply for many loans and credit cards at once, as this can be a red flag for lenders.
You can also ask if your request has a hard request. Some inquiries only require a gentle query about your creditworthiness, which means your creditworthiness will not be affected at all.
