Increasing your credit limit - what to know

If you’re like most people, you’d welcome an opportunity to get a higher credit limit on your card. After all, a credit limit increase means more buying power, more flexibility, and more freedom, right? While that may all be true, it can also be a double-edged sword depending on what type of credit user you are. Below, we’ll dive into exactly how to get a credit increase (and whether it’s a good idea).

First steps to get a credit limit increase

Make sure your credit is healthy

If you’re requesting a credit limit increase, the first thing you should consider is whether your credit score is good enough to qualify for one. In general, you’ll want to make sure you have at least a “good” credit score (somewhere around 660-724) or better, your credit utilization is within the recommended level (not above 30%), and you’ve never missed any credit card payments in the past. If even one of these things doesn’t apply to you, it may be best to work on repairing your credit a bit more before requesting a limit increase. The better your credit score and history are, the more likely you’ll be approved, so make sure your credit file is in tip top shape before contacting your provider.

Update your reported income (if necessary)

If your reported income has improved since you first applied for your credit card, you’ll want to update that information with your provider, as a higher personal income could assist you along the way to getting approved.

Decide on your new credit limit

Going into requesting a credit limit increase, you should already know what you want your new limit to be. That being said, your provider will typically raise your credit limit anywhere from 5-15% of your reported income, depending on a variety of factors (credit score, monthly expenses, etc), so you’ll want your request to fall within that window.

How to increase your credit limit

Online

Depending on your provider, you may be able to submit a request for a credit limit increase online through their web portal. To do this, you’ll generally have to sign in to your account and find the option to submit a request for an increase. 

By phone

If you’d rather speak to a person, you can always pick up the phone and call your provider. You may have to answer a few questions regarding why you’re submitting your request for an increase and if there has been any change to your financial situation (an increase in personal income, for instance).

Through a new credit card

If your credit score has improved or your income has grown since you last applied for a credit card, you can always try to get a credit limit increase by simply applying for a new card altogether. Providing your information is up to date, you shouldn’t have a problem commanding a higher credit limit on any new card you apply for.

Preapproved credit limit increase

In some cases,your provider may simply offer you a credit limit increase - providing you’ve used your current credit card responsibly for a long enough time. This is known as a preapproved credit limit increase.

In general, it’s a good idea to accept these if they’re offered to you, as they can improve your credit utilization ratio and credit score. Plus, it’s a vote of confidence from your provider that you’re a good client and deserving of a bump in your available credit.

Pros and cons of a credit limit increase

Now that we’ve learned a little bit about credit limit increases, let’s go over some of the basic pros and cons to get a clearer picture of whether it’s right for you.

Pros

• Increases your credit utilization ratio - Your credit utilization ratio is a percentage that represents how much of your available credit you use per month. Experts recommend keeping it no higher than 30% (as an example, if you have $10,000 of available credit, you don’t want to spend more than $3000 of it per month). With a credit limit increase, you’ll be boosting your available credit, improving your ratio in the process (providing you keep the same spending habits). For example, if your credit limit was increased to $15,000 and you were still only putting $3000 per month on your card, your credit utilization would go from 30% to 20%, which would have a positive effect on your overall credit score.

• Maximizes rewards - Another benefit to a higher credit limit is the ability to maximize rewards and cash back (providing you carry that type of card). A credit limit increase gives you the ability to put large-scale purchases on your card, maximizing your cash back and rewards so you can save and collect more.

• Useful in emergencies - No one likes to think about emergency situations happening, but they do occur in life from time to time, and it’s nice to know that you’ll have the room on your credit card for emergency purchases (especially expensive ones such as plane tickets) should they be necessary. 

Cons

• Temptation to overspend - Increasing your credit limit shouldn’t be a dangerous decision if you’ve always been a responsible credit user, but if you have a history of overspending and getting into debt, the prospect of having more credit to use could send you spiraling back into old habits. Before submitting a request or accepting a higher credit limit from your provider, think carefully about whether or not it’s a good decision for you personally.

• Higher interest on unpaid balances - In addition to the above point, if you’ve accepted a credit limit increase and begin to overspend (or max out your new, higher credit limit), the accumulated interest will be even tougher to pay off than before. To illustrate, let’s say you have an outstanding balance of $2,000 on a credit card with a 20% APR interest rate. Every month, you’ll be amassing roughly $33 worth of interest on top of your principal owed—However, if your balance is $10,000 at the same APR, your monthly interest goes up to almost $184 per month. 

• Hard credit check - With every request for a credit limit increase, you’ll be subject to a hard credit check. While one of these every once in a while is fairly easy to bounce back from, it’s still a temporary hit, and enough of them in a short period could seriously damage your credit score.

What to do if your credit limit increase is denied

In the event that your credit limit increase request is denied, you’re within your rights to ask your provider why. In some cases, it may simply be a misunderstanding of your financial data on their end, and a quick correction could result in your request being approved. It’s important, however, to make sure all your information is factually correct and organized before challenging your provider’s decision. Have proof ready that illustrates how long you’ve been a client, your strong credit history, and income change (if relevant). 

If they are still denying your request after this discussion, you may want to look into switching to a financial institution that will provide you with the credit limit you’re looking for.

The last word

Credit limit increases aren’t for everyone, but if you use your card responsibly and can make a solid case to your provider for a bump in your available credit, they can be very beneficial to not only your credit score but your financial flexibility and spending power as well. Have you applied for a credit score increase? How was your experience? Share in the comments below.

Also read:

Credit utilization ratio - the credit score factor you may be overlooking

Switching credit cards - what you need to know

Credit card eligibility explained

How credit cards impact credit