How To Increase Your Credit Limit
An individual’s credit limit represents the total amount of borrowing power that is permitted from all existing credit card accounts. For individuals with only one credit card account, their credit limit is simply the credit line from that one existing account.
However, many people maintain multiple credit card accounts and it therefore follows that adding up the credit lines of all accounts will equal that individual’s credit limit. When an individual seeks to increase his or her credit limit, there are several approaches that can be pursued. Let’s take a closer look.
The Benefits of a Credit Limit Increase
Attaining a credit limit increase feels good – it increases purchasing power and provides a sense of validation that one has been keeping his or her personal finances in good standing. With the increase in purchasing power comes responsibility, however, and it remains important not to misuse the additional credit on needless overspending.
Furthermore, it is important to continue making timely monthly payments on all accounts. Regardless of how a credit limit increase is achieved, it can help your credit score, as the increase in available credit lowers the credit utilization ratio (the percentage of total available credit that is actually borrowed), assuming that the total level of indebtedness remains the same.
The lower the credit utilization ratio, the better it is for a FICO credit score, and credit utilization contributes approximately 30% to a credit score.
How To Get an Automatic Credit Limit Increase
One of the most common ways to get a credit limit increase is also the easiest – in fact it requires you to do absolutely nothing! Most major credit card issuers review accounts on an ongoing basis – and if your account has been in good standing for over a year – you could find yourself the recipient of an automatic credit line increase.
Bear in mind that these are not just handed out to anybody – they go to those cardholders who consistently pay on time every month – and usually more than just the minimum payment. Additionally, since swipe fees accrue to the issuing bank when a cardholder uses the card more often, it can prove more likely that you receive an automatic credit limit increase when you use your card regularly.
The upshot is that you must continue to manage your debt balance effectively. If your card is close to maxed out already, it isn’t likely that you will receive such an increase. But if you demonstrate an ability to manage your outstanding balance responsibly, you very well may receive an automatic increase in available credit.
How to Request a Credit Line Increase
Contact your credit card issuer through the toll-free number on your monthly statement or as it appears on the back of your card. Your chances of receiving a credit line increase are directly related to your degree of preparation, as you will want to be able to explain why you are worthy of a credit increase.
The issuing bank will ask you for your annual income, monthly housing payment, address, current employment status and social security number, as well as how much of an increase you would like to receive. You should know that when you request a credit line increase, a “hard pull” will be made of your credit report and this will lower your credit score slightly.
Do not make the mistake of applying to multiple cards for multiple credit line increases, as this will lead to multiple hard pulls that can have a cumulative negative effect on your credit score. What’s more, every credit card issuer after the first one that you contact will see the string of credit requests – and this can make you appear desperate.
Banks don’t like to lend to desperate borrowers – they prefer to extend credit to those they perceive as deserving – not needy.
How Much of a Credit Line Increase Should I Ask For?
There is no one-size-fits-all answer to the question of how much of a credit line increase to ask for. You also should not ask the credit card phone representative for any help here either, as they are prohibited from giving any guidance.
Requesting an increase in the order of 10-25% of the current credit line is not excessive and will not raise any red flags that would lead to a quick denial. Depending on the strength of your financial behavior with the issuing bank, you may be able to ask for and receive more – but don’t go overboard with your ask.
A 100% increase request is not likely to go through – though it could come with a counteroffer at a lower, yet still substantial percentage increase. Asking for more than a doubling of your credit line would likely be pushing your luck.
Important Things to Remember When Seeking a Credit Line Increase
Remember – you want to communicate to the credit card issuer why you deserve a credit line increase – not why you “need” it. Be nice and remember that the person on the other end of the phone doesn’t owe you anything.
If your income has recently increased, say so. Point out how long you have been a loyal customer and if you have always made your payments on time every month – and often for considerably more than the minimum – then say so.
If you’re utilizing less than 30% of your available credit, say so. If you’re open to a balance transfer that would involve sending some higher-interest rate debt from another card over to the card you’re asking for the increase on, make that clear as well. Try not to go overboard with your credit line increase requests if you plan on attempting them on multiple cards.
Space them out a few months apart so as not to appear desperate and accumulate too many hard pulls in too short a period of time. And remember – sometimes opening an entirely new credit card account – regardless of the size of the credit limit initially attached to it – can prove effective as well.
This will raise your credit limit, provide an increase in purchasing power, lower your credit utilization ratio and strengthen your credit score. Not bad. Just be sure – regardless of how you increase your credit limit – to always manage your credit cards and debt level responsibly.
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