Credit Limit|Credit Score|Credit Cards

Ask & Receive: Understanding the Impact of Requesting a Credit Limit Increase

You may have heard about credit limit increases, but how do they work and do they actually help your credit score? How do you know if you need a higher credit limit, and is too much credit ever a bad thing?

Author: Eduardo Sanchez

March 8, 2023|Blog

Ask & Receive: Understanding the Impact of Requesting a Credit Limit Increase hero image

Credit cards can be a great way to build credit and establish financial autonomy. But as you’re just getting into the world of credit, it can feel overwhelming trying to understand all the nuances and potential impacts of your every move. One of these questions may be whether or not requesting a credit limit increase will hurt your score?

In this blog, we’ll explore the pros and cons of increasing your credit limit, and help you determine if it's right for you. We'll cover how requests for increases are handled by lenders, what effects they might have on your score in the short-term, and how to make sure that more access to credit doesn't harm your overall financial health.

How is my Credit Limit Determined? 

To get a good understanding of credit limit increases and their impact, let’s take a quick dive into how your limit is determined by lenders. Your credit limit is the maximum amount of money you can borrow at one time. Card issuers determine the size of your limit based on a few factors, including things like your payment history – consistently paying your bills on time can lead to a higher limit. The issuer will also consider the number of accounts you have open, your available credit compared to how much you owe, and your income to ensure that you can afford your monthly payments. 

While each credit card company may have its own criteria for determining credit limits, having a good credit score and a history of responsible borrowing can increase your chances of getting a higher limit. It’s important to note that a higher credit limit doesn’t necessarily mean that you should borrow more than you can afford to pay back, as responsible credit use is key to maintaining a good credit score and financial health.

How Does Requesting a Credit Limit Increase Work?

First and foremost, yes you absolutely can ask for a credit limit increase. Many credit card issuers even make it easy with an online request process that just takes a few minutes. When you request an increase in your credit limit, lenders take a detailed look into your financial history. Factors like payment history, ratio of debt to available credit (credit utilization), and date of last hard inquiry all play into whether or not you receive a positive response from lenders. If you have good standing with your accounts and meet the requirements, then lenders will likely approve your request for an increase. But if there are any red flags that pop up during their due diligence, they may deny your request.

When Should I Ask for a Credit Limit Increase? 

If you want to increase your chances of success when requesting a credit limit increase, it’s advisable to wait until something positive has happened since you obtained your card, such as:

  • An increase in your household income

  • An increase in your credit score

  • A decrease in your overall debt

On the other hand, if you’ve recently experienced a job loss or income reduction, missed a recent payment or paid less than the minimum, it’s not recommended to apply for an increase. Also, if your balance is at or near your credit limit, or you’ve recently opened a new line of credit, it may be best to wait.

Even once you have a strong credit history, you may find that the card issuer offers you a lower credit limit than you were expecting when opening a new card. However, after consistently making one-time payments for 6-12 months, you may be eligible for a credit limit increase. To increase your chances of approval, make sure to pay more than the minimum required and keep your current utilization below 30 percent. By demonstrating responsible use of your credit, you’ll show the issuer that you’re a reliable borrower and may be eligible for a credit limit increase.

Short Term Impact on Your Credit Score

Some lenders do a hard inquiry and some do a soft inquiry when making a decision on your credit limit increase. A hard inquiry is reflected on your credit report and might result in your score decreasing in the short term, whereas a soft inquiry will not be shown on your credit report. Lenders should notify you if they’ll be doing a hard inquiry before you request the credit limit increase.

When a lender initiates a hard credit inquiry for your credit increase request, it can temporarily cause your score to dip by a few points. That being said, if you have a good standing with lenders and consistently pay off balances within due dates, then any short-term dips should recover quickly.

The long term impact of requesting a credit increase is dependent on how responsibly you manage the new access to credit that's been granted to you. If you use this additional credit wisely (i.e., you make payments on time, keep balances to a minimum, etc.) then it can actually help your score in the long-term. This is because lenders want to see that you're able to manage credit responsibly and not overextend yourself with too much debt.

Long Term Impact on Your Credit Score

In the long term, having access to more credit can be an incredibly useful tool in managing finances — as long as you use it wisely. Make sure to always make payments by your due dates and keep your balances as low as possible so that lenders know you're attentive to your credit and using any additional credit responsibly. This will show them that you are a financially responsible individual who takes credit seriously, which can have positive impacts on your overall credit score. 

The biggest positive impact to your credit score will be lower credit utilization. If you keep your balances low on your credit cards by paying in multiple small payments over the course of the month and always paying off your full statement balance each month, you’ll have lower utilization in the long term, which will result in your credit score increasing since this shows lenders that you can responsibly handle a higher credit limit.

So, while requesting an increase can cause your credit score to dip temporarily, you can come out ahead if you manage additional access to credit responsibly. Make sure to always pay off debts on time, keep balances low and don't overextend yourself with too much debt. With these practices in place, you should be able to enjoy the benefits of having more access to credit without hurting your overall financial health.

Boost Your Credit Limit and Your Credit Score

Requesting a credit limit increase is easy with most lenders, who typically have a mobile or online process in place. Your lender will likely ask for some information, such as your current income and employment details, to assess your request. If it’s not clear throughout the process, make sure to ask your lender if they will do a hard credit inquiry.

You can also review your own credit reports before requesting a credit limit increase, just as you would when applying for new credit. This will give you the chance to identify and correct any errors, ensuring that your credit is in excellent shape. Ready to request your credit limit increase?