How Much Of A Credit Limit Increase Should I Ask For
Theres no rule of thumb for how much of a credit limit increase you should ask for, and credit card issuers will typically let you know how much you qualify forof course, thats if youre approved for a credit limit increase in the first place.
Advantages Of A Higher Limit
Reduced Credit Utilization. When you accept a credit limit increase, as long you use it responsibly and forgo increasing your spending, it will reduce your credit utilization. Why does that matter? Credit utilization is one of the key criteria credit reporting agencies like Equifax and TransUnion use to calculate your .
Financial Emergencies. Credit doesnt just grow on trees. Credit can be hard to come by, especially when you need it most. If you run into an emergency, youll be glad you have the financial cushion. Although its almost always a good idea to have an emergency fund of three to six months living expenses set aside, there are some times when you may need to rely on credit.
For example, if youre a snowbird travelling to the U.S. and you run into an emergency, your credit card can help you out of a financial jam. Youll be thankful you have this extra credit at your disposal.
Reward Points on Major Purchases. If used responsibly, a higher credit limit can mean more of your daily spending can be moved to the credit card, and it turn earn more reward points. You can rack up a lot of rewards points by making major purchases on your plastic, instead of writing checks or using your debit card. Paying the taxman with your credit card and paying for major renovations are also great ways to accumulate a lot of points.
How To Ask For A Credit Limit Increase
If you want to ask for a credit limit increase, it can typically be done in one of two ways: online or over the phone. Online requests can be done via your card issuer’s mobile app or by logging into your online account. For instance, if you have the Chase Sapphire Preferred® Card, Chase’s website states you can “sign in to get an instant decision on your credit line increase request.”
You can also call your card issuer to discuss an increase and provide your reasoning why. This can be a good idea if you don’t have increased income but want to explain your need for more credit and provide reassurance that you can repay it.
When it comes time to make the credit limit increase, make sure you have the following handy:
- Annual income
- Monthly housing payments
- In some cases, you can also provide a new suggested credit limit
In most cases, you can expect to receive an instant decision on whether you’re approved for a higher credit limit increase, or denied. If you’re approved for an increased credit limit, make sure you don’t misuse the increased buying power. Continue to make payments on time and in full.
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Why Should You Ask For A Credit Limit Increase
A bigger credit line can be helpful when paying for unexpected emergencies, larger purchases over time, or smaller, day to day expenses.
Getting a higher credit limit improves your credit utilization ratio if you keep your spending the same. Generally speaking, a credit balance that is a low percentage of your total available credit is considered responsible credit use and may help your credit score.
That credit score is important for a variety of reasons. If you want to buy a house or a car, the better your credit score, the more likely you are to land that loan. You may also have a lower interest rate, because the higher your credit score, the less you seem like a risk to the bank.
Employers may also conduct a background check before bringing you on board, and they may want to understand your handling of credit, especially if your new job will entail handling money or finances.
What Else You Should Know Before Getting A Credit Limit Increase
Before you ask;
When to ask
- Got a pay increase
- Paid an existing debt in full
- Have a proven track record of paying your bills on-time for at least six months
- Continually pay more than the monthly minimum
- Have had a steady revenue stream for several months
- Have maintained a credit utilization of 30% or less
Sometimes, you dont have to ask at all
- Have a history of making late or less than minimal payments. Late or missed payments remain on your report for up to seven years
- Recently filed bankruptcy. Bankruptcies can remain on your account for up to 10 years
- Asked within the past few months
- Requested an increase on other cards within a couple of months. Space your requests out over time
What goes up must come down
- Your income has been reduced
- You dont use or rarely use your card
- Tough economic times are changing your credit habits
- You missed one or more payments
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What Should You Know Before Increasing Your Credit Limit
Before diving in, we want to share a few words of caution:
- If you dont think youll be responsible with your new credit paying on time and paying at least any new charges in full each month you probably shouldnt try to get a higher limit.
- Only apply for a credit limit increase when it makes sense. A good time to request an increase is after you get a raise, since lenders consider your income when they set credit limits.
- Try a rewards card. If you just want to improve your credit utilization ratio, you could apply for a new card . Then, once you earn your bonus, you can apply those funds toward your existing credit card debt to help dig yourself out of the hole. Here are some of the best credit cards for earning cash back and reward points.
- You may only get so much credit. Each credit card issuer may only be willing to extend a certain amount of credit to you, across all your accounts. So, a credit limit increase on one card could take away your ability to increase your limit on other accounts or open new accounts. This is why transferring a credit limit from one card to another might make sense.
Finally, if you havent yet established credit history, none of this really matters. Start by building good credit scores from the ground up.
Confused about all the numbers on your credit card bill, like your available credit, minimum due, and statement balance? Read our guide to paying credit card bills to become an expert.
When To Get A Credit Limit Increase
While a credit limit increase can seem dangerous for someone already saddled with credit card debt, a higher limit can be necessary for some people to make ends meet, Ted Rossman, an industry analyst at Creditcards.com, tells CNBC Make It. While it’s ideal not to carry any credit card debt at all, “of course that isn’t happening” for many people, he says. America is a consumer debt society.
“In the abstract, a higher credit limit should help your credit score because it will lower your credit utilization ratio as long as how much you owe remains constant or goes down,” says Rossman. But, “if there’s any chance you’ll view a higher credit limit as an excuse to get deeper into debt, you should avoid it.”
Matt Schulz, chief industry analyst at CompareCards.com, agrees that the situation is complicated.
“If you have credit card debt, getting a credit line increase can be like making the hole in the bottom of a sinking boat bigger instead of working to plug it,” Schulz tells CNBC Make It. “If you feel your debt is out of control and that a higher limit would just lead you to spend more, you should absolutely, positively not get one.”
If there’s any chance you’ll view a higher credit limit as an excuse to get deeper into debt, you should avoid it.Ted Rossman
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Cheaper And Easier To Get Loans And Additional Credit
If your credit score is higher, you will have a better chance in the future of getting approved for a credit card, car loan, or mortgage. You’ll also have a better chance of getting a lower interest rate since your credit score determines whether you’ll be offered the best available rate or a higher, risk-adjusted rate.
When Can You Request A Credit Limit Increase
Your credit card issuer sets your credit limit when you apply for your credit card. Some issuers require you to hold a card for a minimum amount of time before requesting a credit limit increase. And some issuers have policies regarding how frequently you can request a credit limit increase.
For example, if you have an American Express card, you can request a credit limit increase once your account has been open for at least 60 days. And, if you have a Capital One card, you generally arent eligible for a credit line increase if you opened your account within the past several months.
You may request a credit line increase anytime you like with Capital One, but in general, Capital One doesnt change an accounts credit line more often than every six months. Other issuers such as Chase and Citi likely have policies regarding when theyll increase your credit line, but these policies arent publicly available.
Some credit card issuers may automatically increase your credit limit if youve used it responsibly for a certain amount of time. And, in the case of some secured credit cards, the issuer may even move you from a secured credit line to an unsecured credit line.
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How Do You Calculate Credit Utilization Ratio
A revolving credit account usually has a credit limit. That is the maximum amount you can charge on the account. The percentage of that limit that you use is an indication of financial responsibility.
If you are using a low percentage of your credit limit, you are demonstrating responsible use of funds. If you max out your cards, youre demonstrating the opposite.
There is a simple formula: Divide your total debt on revolving credit by your total available credit limit on your revolving accounts.;
Total Debt / Total Credit = Credit Utilization Ratio
Timing A Credit Line Increase Request
Technically, you could apply for a higher credit limit online or call your card issuer to ask for one directly as often as you like. But whether or not youll be able to get approved for a higher credit limit depends largely on your card issuers policies. Many of them impose waiting periods or have guidelines on how frequently you can apply for a credit line increase.;
This chart shows how different card issuers compare with their respective policies.
|No set rule for how long new or existing accounts must wait to request an increase.|
|Capital One||Based on account history. Accounts must be at least three; months old, and you cant have gotten an increase within the previous six; months.;|
|Chase||Chase reviews accounts periodically to offer automatic credit limit increases. Theres no firm rule on how often you can request credit line increases directly, but its advised to have your account open for at least six months.|
|Citi||Citi reviews accounts periodically to offer automatic credit limit increases. Theres no set rule for requesting increases, but you stand a better chance if your account has been open three to six months.|
|Discover||Citi reviews accounts periodically to offer automatic credit limit increases. Theres no set rule for requesting increases, but you stand a better chance if your account has been open three to six months.|
|Wells Fargo||New accounts must typically wait at least 12 months before requesting a credit limit increase.|
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Other Advantages Of Credit Increase
Life can throw many financial difficulties and problems your way and you can never predict what will happen in the future. With minor to major setbacks or accidents, you never know when youll need quick emergency cash. For instance, medical bills, car accident costs and repairs, job loss, and any other personal financial dilemma can create the immediate need for capital. Accepting an increased limit on your credit card allows you to make bigger purchases on your card. This way, if you do run into an emergency, you have the financial cushion you need.
Having a credit limit increase on your credit card implies having the freedom to put more daily expenses on your card. With less cash being used and more credit card transactions, this also indicates more reward points earned through the use of the credit card. Additionally, with the ability to make expensive purchases, you should use your credit card to make big purchases instead of cash, writing a check, or using your debit card. Making somewhat larger purchases on your card can help you earn a lot of reward points, generating other benefits and advantages.
Just be careful how you use your rewards points credit card. ;
Reasons Your Credit Card Issuer May Deny Your Request
Your credit card issuer will deny your request for a credit line increase if it appears you are unlikely to handle the additional debt well. This decision is based, in part, on your credit report. Your request may be denied if:
- Your credit score is too low.
- You barely use your credit card or your credit card account is too new.
- You only make minimum payments to your credit card account.
- You dont have enough income.
- You have recently missed payments on your accounts.
- You recently got a credit line increase.
The credit card issuer wont always flatly deny your request. You may receive a counteroffer for a smaller limit increase.
If your request is denied, the company will send you an adverse action letter, which explains why your application for more credit was turned down. You can use this information to improve your position and perhaps try again later.
If you dont understand why your creditor denies your request, do not hesitate to ask. Sometimes, credit card issuers can offer technical solutions to your problem, like consolidating available credit among your different cards.
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How Does Applying For A Credit Limit Increase Affect Your Score
Much depends on how the request is initiated. Most lenders have a mechanism for requesting credit line increases; some will even automatically kick in if you meet certain guidelines laid out by the lender. In these instances, a limited or soft inquiry is usually made by your lender, which, as we have discussed previously in this space, will have no effect on your credit score.
However, if the increase is not automatic and you request it, some lenders may make a hard inquiry. This could pull your score down by a few points and the effect will likely be short-lived. But the request will stay on your credit reports for two years. If you are concerned about the impact of a hard pull on your score, consider asking the credit issuer if a smaller increase request can be reviewed under a soft pull.
The good news is that whether you get an automatic increase or if your request is accepted, your will go down. This will serve to bump your score up, since utilization accounts for 30 percent of your overall FICO score. This is assuming, however, that you dont go right out and charge up a storm with your newfound increase.
But there is no free lunch as they say. Requesting new credit can trigger a drop from the new credit portion of your FICO score, which is worth 10% of your score. However, given the disparate weighting of the two factors you should come out ahead in the end.
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