How to increase your credit limit
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When most people apply for a new credit card, they focus on the big question — whether or not their application is approved — rather than on details such as the size of the credit limit they receive or whether or not it meets their spending needs.
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Yet your credit limit is important to consider for a number of reasons. It represents the maximum amount of credit that you can borrow from your issuer -- aka the most money that you can spend in a given statement period. The second most important detail about your credit limit is that it is a major factor in determining your credit score.
Related reading: Don’t be surprised if banks start cutting credit limits in the coming months
With these definitions in mind, it is important to know how to receive a credit-limit increase as well as what to think about when seeking one. Here are three strategies that you may use to increase the upper limit of your credit line.
3 ways to increase your credit limit
Wait for an increase to your credit limit
This is obviously the most passive option, but arguably the most natural one. Many companies give cardholders a credit-limit increase after a certain amount of time simply as an acknowledgment of their responsible credit use.
Related reading: Here’s why you should never turn down a credit limit increase
Issuers are likely to review your account at one point or another in the next six months to a year. If you’re paying your balance off in full every single month and using your card relatively frequently, then you may be eligible for a credit-limit increase automatically without having to request it.
Apply for a new credit card with a higher credit limit
It may not be the first option that comes to mind, but applying for a new credit card is an easy and effective way to increase your line of credit and decrease your overall credit utilization. If you are a loyal and responsible customer to a bank or issuer, you might be able to receive a higher limit on your new card, especially if you’re in the market for one of the best credit cards including premium options like The Platinum Card® from American Express or a Chase Sapphire Reserve.
Related reading: Battle of the premium travel rewards cards: Which is the best?
The best part about this strategy is that even if you aren’t approved for a higher credit limit than your existing maximum limit, you still increase the amount of overall credit available to you, which will ultimately help you lower your credit utilization and possibly raise your credit score in the process.
Keep in mind, however, that applying for a new credit card will almost definitely result in a hard pull on your credit. Hard inquiries may result in a short-term dip in your credit score but will ultimately disappear entirely from your personal credit report after two years.
Related reading: How bad is it to get denied for a credit card?
Request an increase to your line of credit
It might sound intimidating or bold, but requesting an increase to your line of credit is a common practice and issuers often make the process painless. Increasing your line of credit for an existing credit card can be as simple as checking your services in your online account or calling a customer service phone line for the issuer.
For example, Amex includes a handy “Increase Your Credit Limit” option within the “Account Services” section of your online portal, a service available to existing customers once your account has been open for at least 60 days. On the other hand, Chase only allows customers to request a credit limit increase online if they receive a targeted offer; otherwise, you’ll have to pick up the phone, call the Chase representative and make a case for your request.
You may want to have an income statement on hand, since most issuers will require that you input up-to-date financial information to help them decide whether or not to grant your increase request. Also be prepared to undergo a hard inquiry with a credit-increase request as well. Lower requests of only a couple of thousand dollars will likely only incur a soft pull of your credit, but you should still weigh the risks of a hard pull on your credit, just in case.
Why your credit limit is important
Your credit limit is the key to your credit utilization. Your credit utilization is a major factor in your credit score, amounting to about 30% of your final FICO number, and, coincidentally, a number that you typically want to keep below 30% when it comes time to crunch the utilization numbers at the end of the month.
Related reading: What is a good credit score?
Let's take a look at how this works. Your utilization refers to the total balance you have across all your credit cards, divided by your total credit limit across all cards.
- Card #1: You spend $1,000 during the month, and your credit limit is $5,000
- Card #2: You also spend $1,000, but your limit on this card is $10,000
When your statement closes at the end of the month, here's what your utilization will look like: ($1,000 + $1,000) ÷ ($5,000 + $10,000) = 13.33%.
Hopefully you're already doing everything in your power to keep your expenses down each month, so the easiest way to decrease your utilization ratio (and improve your credit score in the process) is by increasing the denominator in the equation -- the amount of total credit you have available to you. In the equation above, if you increase the credit limit on your first card from $5,000 to $10,000 without changing your spending, it would drop your utilization ratio down to 10% and likely improve your score.
Related reading: 6 things to do to improve your credit in 2020
Remember, in this hypothetical situation you’ll want to keep your spending under $4,500 during the month because this represents 30% of your total limit of $15,000.
Important credit limit considerations
When should I request a credit increase?
There’s no hard-and-fast rule, but you should generally only request an increase to your credit limit if you have a reason to do so.
Whether you’ve received a raise and you need more credit at your disposal or you’d simply like to lower your utilization ratio month over month in hopes of improving your credit score over time, it’s always good to keep in mind your reason for requesting an increase should you have to vouch for your request over the phone.
There are also times when you shouldn’t or simply cannot request an increase to your credit limit. Most issuers have a few qualifications that you must meet in order to even be eligible to request an increase. For example, American Express explicitly states that your account must have been open for at least 60 days before you will be eligible for an increase.
Other issuers are more vague about this time period. For instance, Capital One states that “...accounts that have only been open a few months are generally too new to be considered.” But it’s unlikely that you’ll be approved for an increase within the first quarter of spend on your new credit card.
Does requesting a credit limit increase hurt my score?
We’ve discussed the ways that increasing your credit limit can help your score, but is there any way that it can hurt your score? In the short-term, yes, requesting a credit limit increase can hurt your credit score. It may result in a hard pull of your credit.
Related reading: How to check your credit score for absolutely free
According to FICO, a hard inquiry drops your score by an average of five to 10 points. This small dip is likely to rebound after a few months at most, and in the long run, increasing your credit limit is unlikely to hurt your credit score. Remember, however, that having more credit is never a good reason to unnecessarily borrow more. Responsible spending habits and on-time payments are the most effective way to improve your credit score over time.
How long does a credit-limit increase take?
You may be able to get an answer on a credit-limit increase instantaneously, whether online or over the phone. For example, I requested a $1,000 increase to my Blue Cash Preferred® Card from American Express after having the card for about three months. This was a small boost to my existing credit line, meaning I may have had only had a soft pull on my credit and a low risk of even a short-term dip in my FICO score. I requested the increase through my online portal, verified my annual income information, and received a positive notice after only about 30 seconds.
Related reading: Chase thought I stole my own identity — so I got my first credit card with Amex instead
Some responses are not as rapid. Like an application for a new credit card, you may receive a notice that your request is being reviewed. In this case, you may have to wait seven to 10 business days to receive a response in the mail.
How much of my credit limit should I be using?
The ideal credit utilization number is routinely noted as 30%. Again, this means that if you have a credit limit of $1,000, you should be actively holding a balance of no more than $300 on a monthly statement. However, paying off your statement before it closes and keeping your utilization in the single digits is a best practice among those who like to keep their credit scores in the “Excellent” range. It shows issuers that you have an open and active account in positive standing with a low balance to your name.
Related reading: The best credit cards for excellent credit
A credit-limit increase could help boost your credit score by increasing your total available credit and thereby decreasing your utilization ratio. As long as you understand that more credit isn't a license to spend more, there's no reason to pass up an opportunity to increase the credit available to you and many issuers have automated request systems that make the process seamless and simple.