Credit card companies typically allow you to request a credit limit increase once or twice per year, per account. Getting higher credit limits by requesting increases with regularity will enable you to take advantage of your good payment history and potentially result in a higher credit score.
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Why credit limits matter
About 30% of your credit score has to do with the amounts you owe your lenders, which the credit bureaus "score" by looking at your balances as a percentage of your available credit limits. This is referred to as "credit utilization," or the percentage of your credit limits you use on a regular basis.
For example, someone who has a $1,500 balance on a credit card with a credit limit of $5,000 would have a credit utilization ratio of 30%. ($1,500 balance ÷ $5,000 limit = 0.3, or 30%). As a rule of thumb, a lower credit utilization ratio lends itself to a higher credit score, all else equal.
According to FICO.com, the ideal credit utilization ratio on a revolving account (credit card or line of credit) is less than 30%. Having a credit utilization ratio higher than 30% can result in a lower credit score, and the higher your utilization goes, the lower your credit score will be.
Why you might want to raise your credit limits
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Suppose you spend $2,000 in the average month, and put all of your spending on your credit card with a limit of $5,000. Even though you might pay the card balance off in full each month, your credit report will reflect your utilization ratio of 40%, which is higher than the 30% level at which higher balances start hurting your credit score.
By raising your credit limit to $8,000, for example, you can ensure that your average monthly spending of $2,000 doesn't put your credit utilization ratio above the 30% threshold.
Having higher credit limits is also important for other reasons:
- Getting approval for high-end credit cards. The very best credit cards feature extraordinarily valuable sign-up bonuses and cash back rewards rates. But some of these high-end cards are available only to people who can qualify for $5,000 or $10,000 credit limits. Having some experience with a high credit limit on another card can be a positive factor for getting approval for one of these high-end cards.
- Experience counts. Someone who has experience managing a credit card with a $500 limit isn't an equal risk as someone who has used a credit card with a $30,000 credit limit. Having a high credit limit that you use intelligently indicates to lenders that you're the type to use only what you need, not push the limits on how much you can possibly borrow.
How to raise your credit limit
There are a few ways to maximize your odds of approval for a credit limit increase or for getting approved for a card with a high credit limit.
- Always pay on time. It should go without saying that having a history of always paying your bills on time, and paying your balances in full, is a positive factor for having your credit limit increased. Credit card companies are not just lenders. They also make money every time you use your card from the fees that they charge merchants who accept credit cards for payment. Thus, people who spend heavily and pay in full are really good customers for the card companies, and the card companies have every reason to entice cardholders with higher credit limits to encourage them to use their cards for more of their spending.
- Ask for a credit limit increase frequently. You can ask for a credit limit increase on your card by making a phone call to your credit card company, or by requesting a credit limit increase through your online banking portal. Card companies that specifically say a credit limit increase won't result in a "hard pull" of your credit report are best for this purpose, since your credit score won't be impacted by your card company looking at your report again. Have a new credit limit in mind before reaching out to your card company. It might be smart to ask for no more than a 50% increase in your credit limit at any given time. Asking for too much makes it more likely your request is denied, resetting the clock on when you can ask for a credit limit increase again.
- Open a new account. Some card companies are stingier with credit limit increases on existing accounts. For this reason, it may be advantageous to open a new credit card account rather than get a credit limit increase on an existing card. Targeting a card that offers a higher minimum credit limit is the smart way to go. For example, this credit card can come with a credit limit as low as $500. However, another card from the same issuer only comes with credit limits above $5,000. This fact is specifically stated in the terms and conditions of the card offer. As a general rule, cards marketed toward people who have excellent credit offer the highest credit limits. This cohort includes travel rewards and sign-up bonus cards, in particular.
- Make your cards compete for your business. Getting a new card that offers a higher credit limit can be really useful as a bargaining chip. "I'd love to use this card, but the credit limit is really low compared to my other card with a $20,000 limit" is a compelling argument for a credit limit increase on a card you already have. This goes double when the card company can see that your spending went from, say, $1,000 per month, on average, to $100, for example.
- Create your own credit limit. People who have spotty credit records (credit scores below 600) may have to create their own higher credit limit by way of a secured credit card. A secured credit card like this one offers a $200 credit limit for approved applicants, which can be increased by making a larger deposit. For example, you could deposit $1,000 and get a $1,000 credit limit rather than the standard $200 limit. Luckily, secured cards offer the ability to "graduate" to an unsecured card after making several on-time payments, thus it's possible that your deposit will be returned and your credit line will remain at the higher limit after six to 12 months of on-time payments.
Realistically, there are no awards for having extraordinarily high credit limits. You really only need a credit limit that is high enough that you can always maintain a credit utilization ratio of less than 30% in any given month. While it may be fun to go from a $500 credit limit on one card to a wallet full of $10,000+ credit limits in a year, there is a point where having higher limits is more for show than for practical purposes.
For this reason, it's important not to lose sight of the big picture. Above all else, responsible credit use (spending only what you can afford to repay in full) is what matters most.
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