Have you ever noticed a sudden increase in your credit card’s available credit? It might not have been something you requested, but it signals that your card issuer sees you as a responsible borrower.
But what if you start with a low credit limit on a new card and it doesn’t increase over time? What should your credit limit be, and should you ask for an increase? The answer is a resounding yes, and there are compelling reasons for doing so.
Increase Your Credit Score
Boosting your total available credit reduces your credit utilization ratio, a crucial factor in determining your credit score. FICO considers a high credit utilization ratio detrimental to your creditworthiness.
For example, starting with a $1,000 limit and consistently charging $800 results in an 80% utilization rate. After an increase to $5,000 and the same monthly charges, your utilization drops to 16%.
While an increased limit can benefit your credit score, avoid maxing out your card post-increase to maintain a healthy utilization rate under 30%.
It’s important to note that requesting a limit increase may prompt a temporary drop in your credit score due to a hard inquiry, unless the issuer automatically raises it.
Benefits of Credit Limit Increase vs. New Card
When seeking more credit, choosing between a limit increase and a new card is crucial. While a new card may offer enticing perks, it could harm your credit by reducing your average credit history length.
Opting for a limit increase on your current card when in need of extra credit is favorable to maintain your credit history length.
How to Ask for a Credit Limit Increase
Preparing to request a credit limit increase involves strategic timing. Build a positive payment history and consider the account’s age before reaching out to the issuer.
When ready, contact the issuer and be forthcoming about your financial situation and the reasons for seeking an increase. Emphasize your creditworthiness and loyalty to boost your chances.
Should You Increase Your Credit Limit?
Raising your credit limit can positively impact your credit score by lowering your utilization ratio. Pick the right moment and make the request to reap the benefits.
