Credit allows you to borrow money that you can pay back at a later date. Your credit limit is the amount of money that credit cards will allow you to borrow before you get declined or charged for going over that limit. Being able to raise your credit limit is a sign that typically means you have a good credit score from proving your reliability with timely repayments.
Before you think about increasing your credit limit, consider why you personally want to increase your limit. If you constantly struggle with repayments and going over your credit limit, then a higher limit might not be the answer. Managing your debt is about practicing good credit utilization. Once you have mastered that, it is good to understand how to increase your credit limit and know when it is beneficial to you. So, if you think you’re ready, here are five ways you can increase your credit limit and what you might want to consider.
Benefits of Raising Your Credit Limit
Raising your credit isn’t so you can spend more, it’s about not splurging with your new higher limit. This can prove to the lender that you are a reliable borrower. Of course, it’s helpful for when you need to replace things like a phone or a dishwasher. However, lenders want to see a high credit limit paired with a good credit score and good habits. These paired together will earn you:
- Trustworthiness – A higher credit limit shows that others have trusted you before. Lenders will be much more willing to help you if you have good credit habits. Once you have their trust you can receive new loans when you need them.
- Purchasing power – Good credit will help you tremendously when you want to get a mortgage on a home, rent an apartment, or get a car loan.
- Lower credit utilization – As long as your habits don’t change drastically with a limit increase, then higher credit will help keep your credit utilization lower. This is because if your credit limit goes up, but your spending stays the same or only increases a little, then you will be using a smaller portion of your credit.
4 Ways to Increase Your Credit Limit
Now that you know why you should raise your credit limit, use these strategies to help you get there:
1. Ask for a Credit Limit Increase
The first and rather obvious way to increase your credit is to ask your issuer. Some issuers will only bump up your limit if you ask, so it’s a good idea to look at what a request entails first. Here are some ways you can ask for a credit increase:
- Make an online request – These days, most credit card companies have the option to request a credit increase in their online portal. To make a request, simply sign in to the account associated with the card you want an increase. Go to card services and fill out a credit increase request. Most of the time you’ll know if you’re approved almost instantly and you can get the increase that day.
- Call your issuer – If you prefer to speak with a customer service representative, call the number on your card or look online for a customer service line. Many customer service representatives will be able to tell you if you’re eligible for a credit limit increase.
- Be careful of risks – When you make a request to increase your credit, there’s a good chance that your issuer will run a hard credit inquiry on your credit. A hard inquiry goes on your report and can take points off of your score. If you’ve already applied for loans or an increase in the same year, it could take even more points. However, if you’re confident that you will get the increase, the payoff could help your credit in the long-run.
2. Wait for an Automatic Increase
The next thing that you can do is wait for an automatic credit limit increase. Although some do require you to ask, there are many credit card issuers that put you on a track to increase your limit within a certain timeframe or after a certain amount of spending and repayment. Most automatic increases will occur every six to 12 months along with good payment history.
Improve your chances of an automatic increase by having a solid payment history. Use your card often and make your payments on time. If you don’t actively use your card, then you probably won’t get an increase. A good practice is to only use your card when you have the money to pay it off. You can also try using your card for specific payments like every time you buy groceries or gas to build consistency.
3. Apply for a New Card
There are ways you can get a credit increase without waiting or asking. One of those is to apply for a new credit card. This isn’t a guaranteed way to increase your limit. Nonetheless, if you have good credit and made all your payments on your other lines of credit, then you could get approved for a card with a higher credit limit.
4. Increase Your Deposit
Some credit cards, known as secured cards, require a security deposit to open the card. The issuer holds on to this money until the card is closed. If you have a secured card, you should be able to increase your credit limit by paying more into your security deposit for the card. Many issuers have different types of cards for the amount of deposit paid.
When to Increase Your Credit Limit
Timing is an extremely crucial factor when requesting a credit limit increase. If you ask for an increase when you’re not ready for one, there’s a possibility that this could negatively affect your credit score.
Have a Good Track Record
As we’ve mentioned, having a proven track record is what a bank or lender wants to see. The best time to ask for a credit limit increase is after months or years of proving you make your payments on time. If you can go in with a strong credit report, then odds are you will get approved.
After an Increase to Your Annual Income
Many times when you ask for a credit limit increase, the representative will ask for your income along with your employment status, Social Security Number, and where you live. They want to know this so that they can understand your financial standing. If an issuer sees that you just received a raise, they might view you as more trustworthy.
Things to Consider Before Requesting Higher Credit
With such an impact on your credit report, there are some important considerations you should make before you increase your credit limit. First, consider if you’ve already tried to increase your credit limit in the last year. From there, you should know if asking for a credit increase will require a hard inquiry or soft inquiry. If the bank does require a hard pull of your credit, you should avoid doing this more than a couple times in a year, as it could negatively affect your credit score.
Next, you’re probably wondering how much credit should you request? Most professionals will recommend keeping your credit utilization as low as you can. Those who have good credit scores keep their credit utilization under 10 percent. If you’re looking to improve, it’s recommended to keep your credit utilization under 30 percent. So, if you find trends in your spending and credit use, ask for the amount that will help you stay in that healthy credit range.
What to Do If Your Request Is Denied
If your request for a credit limit increase is denied, there are a couple things you can do. First, try to determine the reasons you were denied. In some cases, your bank may even provide a brief explanation. The next thing to do is wait, because if you reapply too soon you risk damaging your credit further. Wait and try applying for a lower amount. In the meantime, practice healthy credit and spending habits. Work on putting yourself in a better place financially by creating a budget, paying down debts, and resolving any issues impacting your creditworthiness.
Once you do have a higher credit limit, it’s important to continue practicing the smart financial habits that got you there. You want to be sure that you don’t max out your credit limit as soon as you’re approved, as it’s wiser to use it only as you absolutely need it.
Be sure that you always have the money you spend available to pay back your credit card. Now that you know how to increase your credit limit, when to increase your limit, and what to consider, you should be ready to prove yourself to any credit issuer.
Sources: CNBC | Investopedia | Turbo