Having a credit card gives you the financial freedom to make large purchases and pay back the balance later, but this freedom only goes as far as your credit limit. Learn the do’s and don’ts of a credit card limit increase to
What is a Credit Limit?
When you apply for a credit card, the lender will set a maximum borrowing limit on your card. This number is typically based on your credit score and annual income. For example, most applicants with a stable income and good credit can expect a limit between $3,500 and $7,500. Credit card companies will approve you for an amount that they feel you can afford and will be able to pay back.
Why Do I Need a Higher Limit?
Having a high credit limit allows you to spend more! It also allows you to access more credit without applying for a new card, which can affect your credit score.
It also helps if you want to use your credit card for a specific purchase that is higher than your limit. For example, if you intend to use a credit card with no foreign transaction fees for travel expenses, you’ll want to make sure your limit is high enough to cover what you plan to spend.
Also, if you want to earn rewards like miles or cash back, a higher limit increases what you can earn with your spending.
|My credit card company automatically offered me an increase.|
|Lucky you! Sometimes credit card companies will review a borrower’s payment history and identify that you are a candidate for a credit line increase. This is more likely to happen if you started out with a very small balance. |
Once you’ve proven to the credit card company that you are responsible they’ll want to increase your limit so you have more spending power. Credit card companies make money in interest and fees for every dollar that you spend. If you do get an unsolicited limit increase, it’s usually a good sign that your credit is healthy, but be careful not to go on a spending spree.
Don’t Max Out Your Card or Have a High Credit Utilization
Having a higher credit limit allows you to spend more on your card without maxing it out or having a high credit utilization ratio. Using too much of your available credit can lower your credit score. Learn more about why you shouldn’t max out your credit cards.
Make Sure the Timing is Right
Knowing when to ask for a credit card limit increase may help you increase your chances of the lender granting your request. You should examine your personal finances and credit report and consider the following tips.
Do request a credit line increase when you…
- Get a new job or a raise
- Have a consistent payment history
- Have a good credit score
- Haven’t taken on new debt for awhile
Getting a new job or a raise at your current one, is a great time to request your increase. If you are making more money, the credit card company will feel confident that you will be able to afford a higher monthly minimum payment. This is especially true if you have had the card for a while and have consistently made your payment on time.
Your lender may look at your credit history before granting you a credit limit increase. So it’s best to ask for one when your credit score is in good health and you don’t have any major delinquencies or problems on your report.
If you recently took on lots of new debt like another credit card, mortgage or car payment, you may want to wait a few months before asking for a limit increase. New credit can temporarily ding your credit score and increase your debt to income ratio.
Don’t request a credit line increase when you…
- Have maxed out the card
- Are behind on payments
- Recently took on new debt
- Lost your job or took a lower-paying job
Should I Pay Down My Balance Before Requesting a Credit Card Limit Increase?
You may not need to pay down your whole balance before requesting an increase, but you may want your current credit card utilization to be below the recommended 35-40%. For example, if you currently have a $5,000 limit and a $3,000 balance you may want to reduce the balance to $1740 (35%) before asking for an increase.
Once your credit limit has increased you’ll be able to spend more on the card while keeping your utilization within the recommended window.
How Do I Ask for an Increase?
If you have an online portal for your credit card you can probably request a credit limit increase online. In many cases you’ll need to fill out a form and include updated income information. If your request is denied you probably don’t meet the requirements for an increase.
|What if I am denied?|
|Don’t worry, if this happens to you we recommend taking 6-12 months to improve your credit health. You may want to lower your balances, pay your bills on time and increase your income. If you have more debt than you can manage, you may want to consider debt relief.|
Making changes to your financial situation over the course of a year should help improve your credit health and chances of approval for a credit limit increase request.
Learn more about good habits that will help you build or repair your credit.