Find Out When to Take a Credit Limit Increase
Is it Good to Have a High Credit Limit?
Credit cards and other lines of credit typically have a maximum credit limit, which is the amount you can spend or borrow before your lender stops providing money. But those limits aren’t set in stone—they can rise or fall over time.
Lenders occasionally offer to increase your credit limit out of the blue. You might think it's a trap (why wouldn’t you want a higher limit?), but in some cases, there’s no catch. Especially if you have good credit and you always pay on time, the offer might be worth accepting.
Before you pursue a credit limit increase, find out if it will affect your credit scores.
Credit Limit Increases Can Help Credit Scores
If a lender offers to increase your credit limit, that’s a good sign. The lender takes a risk by lending you money, and now they’re willing to increase that level of risk. For example, during the mortgage crisis and the financial turmoil surrounding COVID-19, things went the other way: Lenders slashed credit limits or closed accounts when they feared that borrowers would not be able to repay loans.
Why is it good to get a higher limit? It can lead to better credit scores.
If you’re using almost all of your available credit (known as being maxed out), lenders worry that you’ve fallen on hard times, and you might not be able to keep up with payments.
Example: Assume your credit limit is $1,000, and you owe $200. You are using 20% of your total available credit because 200 divided by 1,000 is .20 or 20%. This is a good place to be. Lenders like to see your credit utilization at roughly 30% or lower.
Example #2: Assume your credit limit is $1,000 and you spend roughly $800 every month on your credit card before paying it off completely every month. It can still appear that you’re using 80% of your available credit—even though you pay off your entire balance and never pay any interest. Depending on when lenders report your balance to the credit bureaus, you might have a high balance on your card.
A Free and Clear Offer?
Whether or not you should accept an offer from your lender depends on the nature of the offer. If your lender will increase your credit limit with no strings attached, go ahead and accept. But make sure that the offer is yours for the taking. If you need to “get approved” or “qualify,” think twice. In those cases, it may look like you’re requesting more credit from your lender (which was never your intention). It’s best if lenders can assure you that you’re already pre-approved.
If you’re not sure, call your lender (the credit card company, for example) and ask. Find out if they need to review your credit and if they require any information about your income (or other financial details).
Again, a “free” credit limit increase will only help your credit scores. You don’t need to spend any more than you’re currently spending each month. Instead, you’re increasing the size of your safety net—which you’ll hopefully never use. The only reason to decline might be if you simply don’t trust yourself to leave that credit untapped. If you think you’ll spend more (without paying it off) just because you can, tell your lender to leave things unchanged.
Requesting an Increase
If your lender is not just giving you a pre-approved credit limit increase (in other words, if you need to qualify), proceed with caution. The strategy can backfire any time you ask for an increase.
Your lender could potentially find something they don’t like, resulting in a lower credit limit—or a closed account. Lenders prefer to lend to people who don’t need money desperately. When you’re on shaky financial ground, lenders may shut things down or charge higher interest rates. You don’t want to draw any attention to your account if they’re going to find something unfavorable.
The process of reviewing your credit account can potentially hurt your credit scores, at least in the short term. Your credit card company will make an inquiry while checking your credit, and a hard inquiry, in particular, makes it look like you’re shopping for more credit. If you’re about to get a large loan, such as a home or auto loan, those inquiries can cause problems.
How to Request an Increase
Sometimes it makes sense to request a credit limit increase. Your credit scores might dip temporarily, but eventually, things should improve.
The best time to ask for an increase is when you don’t need it. Ask for a higher limit when your account balance is low or zero (after you make a payment, for example), when you have plenty of steady income from your job, and when you know your credit report is free of negative items.
When you make a request, you may need to explain why you want a higher limit. Be honest and explain your motivations. You won’t do yourself any favors by saying that cash-flow is tight and you need to spend more (you probably won’t get approved anyway if you’re struggling). It’s better to explain that you’re just trying to keep your credit usage low relative to your credit limits and that you probably won’t use the entire amount available to you. That’s a very reasonable request, especially if your monthly spending regularly eats up a substantial portion of your credit limit (and it makes the most sense if you pay off your card every month—making minimum payments is a sign of trouble).
If you're not into playing games with credit scoring models, there are other benefits to increasing your credit limit. Having more money available means more options. You can use your credit card in an emergency, and (if you earn rewards on your card) you can use it for large purchases.
If you've been writing checks or using other cumbersome payment methods because your limit is too low, getting a higher limit may make payments more convenient.