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Does It Hurt to Increase Your Credit Limit?

Jackson Forelli Updated: June 27, 2023 • 4 min read
Increasing Credit Limit

There are many advantages to raising one’s credit limit. With inflation running wild and the pressure to spend increasing, individuals are looking to raise their credit limits for more spending flexibility. However, increasing a credit limit means potentially increasing a debt burden. And this can be a slippery slope. Many individuals are strapped with debt, and it can be tough to recover from this. There are a few different important considerations to ponder before deciding to ask for a credit limit increase. This article aims to help the reader decide whether raising a credit card limit will put them in a better or worse financial situation.

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How Can You Get a Credit Limit Increase?

There are two common ways for a credit card user to increase their credit limit. One way is for the lender to automatically increase the user’s limit. This occurs when the user has been a responsible borrower and has a history of making timely payments. The other way to increase a credit limit is for the card user to request an increase. The credit card company will ask the user personal questions about their annual income, their employment status, and their monthly rent or mortgage payments. The credit card companies will examine how many personal loans the user has at one time before making their decision. Your credit card company will use this data to determine whether the user can handle a larger debt burden.

Do Credit Limit Increases Hurt Your Credit Score?

This depends on whether the lender pulls the card holder’s credit report in order to accommodate the credit increase request. Some card companies do not pull credit reports, and some do. There are other variables at play to consider when trying to determine the right amount of credit to ask for.

 Does requesting a credit limit increase affect your credit score?

Yes, if the lender pulls your credit report this can negatively affect your credit score. When a lender does obtain an individual’s credit report, it is known as a hard inquiry. A hard inquiry could affect the user’s credit score, because credit score models take into account how recently and how frequently the individual applies for credit.

It is important to check with the credit card company about this feature. If they do consider this process a “hard inquiry”, limiting the amount of increase requests makes sense, as this can count against the user’s credit score. 

Can my credit card company reduce my credit limit?

Credit card companies can also decrease credit limits. This would normally stem from “irresponsible” credit card use. Some of the reasons for limit reductions could include a number of missed or late payments, or not using the card much for a certain amount of time. If a credit limit is reduced, that causes the individual’s credit utilization ratio to go up. 

How does getting a credit limit increase affect your credit score?

This is dependent on whether the individual can consistently pay down their debt. Believe it or not, a higher credit limit can actually help a credit score. This is because a higher credit limit can help lower one’s credit utilization rate. 

Credit utilization, or how much of your available credit you’re using, is a critical factor in determining a credit score. A ratio under 30% is generally considered to be adequate. This, along with responsible behaviors like on-time payments and staying within your limit, could actually help improve your credit score in the long run.

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How Can You Become Eligible to Increase Your Credit Limit?

There are certain strategies individuals can take to increase their credit limit.

 Keep updated personal and financial information. Staying organized is the first step in raising a credit limit. Updating salary and personal information that can help raise a limit as well.

 Pay your monthly statements on time. Being punctual with payments shows that the borrower is a reliable customer. This can go a long way in earning the trust of a credit card company.

 Use more than the minimum credit card bills payments. It may sound obvious, but making larger payments shows the credit card company a borrower has the ability to pay off larger debts.

 Review your credit report. It’s a good idea to make sure the information on your credit report is up to date—and that there aren’t any errors. The three major credit reporting agencies allow you to access their free reports. 

 Monitor your credit score. There are resources out there that let individuals monitor their credit score. These are good options because many companies offer this service for free, and these checks will not negatively impact a credit score.

What Should You Do If You Get a Credit Limit Increase You Don’t Want?

If you determine a credit limit increase is not appropriate at the current time, contact your credit card company. Credit card companies have customer support teams that take calls for these types of requests.

However, it is worth considering keeping a higher credit limit if possible. That debt utilization rate that was discussed earlier can be improved with a higher credit limit. And this can ultimately improve a credit score. Remember, higher credit limits can lead to irresponsible spending. If the individual is worried about getting in too much debt with a high credit limit, then it is a good idea to lower their credit limit!

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Jackson is a consultant for a large American Asset Manager, notable clients include Morgan Stanley, Merrill Lynch, and Wells Fargo. He also writes on financial topics, including bitcoin, personal finance, and portfolio construction. Avid skier during the cold New England winters.