Asking for a credit limit increase could hurt your credit score, but only temporarily. More importantly, getting a higher credit limit can increase your available credit and ultimately increase your credit score, depending on how you manage your credit card accounts.
The key is to understand how your credit card activity influences your credit history. Here’s everything you need to know about increasing your credit limit and how it affects your credit.
How to get a higher limit on your credit card without hurting your score
There are several ways to get a higher credit limit that won’t affect your credit score. The first is if your credit card issuer increases your credit limit on its own. This can happen automatically if your credit has improved since you first got the card and you’ve used your card responsibly.
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The other way is if you ask for a credit limit increase and your card issuer decides to approve the request without performing a credit check. However, most of the time there will be a serious credit check, which can impact your credit score.
The good news is that a single firm credit application usually results in a loss of less than five points in your credit score. Plus, serious inquiries only impact your credit score for 12 months, so as long as you use your credit cards and other credit accounts responsibly, you are unlikely to see a significant negative impact. .
How much credit limit increase should I request?
There’s no rule of thumb for determining how much credit limit increase you should ask for, and credit card issuers will usually tell you how much you’re eligible for. place.
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Credit card issuers use a variety of factors to determine your eligibility, including your credit score, income, and the amount of available credit you currently have.
Call your card issuer to find out if you’re eligible and how much you can get, then decide if you want to claim the full amount you’re eligible for or less.
Increasing credit card limits: risks and rewards
Increasing your credit limit gives you more available credit in your account, and while it can be helpful for your credit score, it can also have the opposite effect if you’re not careful.
The main benefit you can get is a lower credit utilization rate. Your credit usage rate is the amount of available credit you’re using at any given time, and you can calculate it by dividing your credit card balance by your credit card limits.
For example, if you have a card with a balance of $ 3,000 and a limit of $ 8,000, your usage rate is 37.5%.
Credit experts recommend keeping your utilization rate below 30%, but there’s no hard and fast rule: the lower the better. So if you were to increase your credit limit to $ 10,000 on your card that would lower your usage rate to 30% which could help improve your score.
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That said, if you’ve maxed out your current credit limit and are asking for more so you can use it as well, it could have the opposite effect. Maximizing a credit card hurts your credit score not only because of the high usage rate, but also because it’s more difficult to keep up with your monthly payments. If you miss a payment for 30 days or more, your score could drop significantly.
Therefore, it is important to consider your motivation for requesting a credit limit increase. If you plan to use it to improve your credit utilization rate, or if you need it to make a large purchase but plan to pay it off quickly, it could potentially improve your credit even with serious demand. But if you’re hoping to increase your credit limit so that you can further maximize your credit card, you might be better off looking for ways to pay off your debt instead.