Most of the things that you can do to improve your credit take months or even years to accomplish. But there's one very simple money move you could make that's likely to have an immediate impact and will cost you nothing. Unfortunately, most Americans aren't planning on doing it.
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What is that simple money move? Asking for a credit line increase. According to The Ascent's recent survey on credit card habits among Americans, just 33% of respondents said they're planning on asking their creditors to raise their credit line in the next year -- which means 2 in 3 American's won't be making this request.
If you're one of the majority of Americans who is not planning to request a credit line increase on your existing credit cards, read on to find out why this is a big mistake.
Requesting a credit line increase is a quick and effective way to raise your credit score
When you ask your existing creditors to increase your credit line, you're simply requesting that they boost your credit limit and make more credit available to you.
Doing this can have a positive impact on your credit utilization ratio, which is one of the most important components of your credit score. Credit utilization ratio is second in importance only to payment history and it accounts for 30% of your score in the Fair Isaac Corporation's FICO® Score formula.
Your credit utilization ratio is determined by dividing the credit you've used by the credit available. The lower your ratio, the better your credit score, and ratios above 30% can be potentially damaging to your score.
If you owe $300 on a card with a $1,000 limit, you'd divide $300 by $1,000 to see a ratio of 30%. When you raise your credit limit, your utilization ratio improves immediately. If your $1,000 credit line is raised to $2,000, your ratio comes down to 15%, which should cause your credit score to go up.
Of course, while you should not raise your limit if you will use the additional credit to incur more debt, raising your credit limit does also allow you to charge more expensive purchases to your cards, potentially earning more rewards as well.
Asking for a credit limit increase is quick and simple
The boost to your credit score that comes from a credit line increase is a major advantage. And there's some even better news: It is incredibly simple to ask for a credit line increase.
In most cases, you can make a request for a larger credit line by signing into your card's online account. You'll usually find the option to "Request a credit line increase," under "Account Tools," or "Account Services," depending on your card issuer.
Once you click the link to make the request, your creditor may ask you for some info about your income -- but this isn't always the case. Hard credit checks usually aren't required either, which means your credit score shouldn't be affected. And you should get a decision almost straight away about whether your credit line has been bumped up or not.
If you don't see the option to request a credit line increase, or if you want to confirm you can request an increase without a hard credit check, you can also call your creditor and ask them.
Watch out for these pitfalls
While asking for a credit line increase can have the major advantage of raising your credit score, there are a couple of things to watch out for.
First and foremost, getting a limit increase isn't a substitute for paying off credit card debt. While both paying down debt and asking for a larger line of credit can reduce your utilization ratio, paying down debt has a far greater impact on your overall financial situation. Only by paying off your card balances can you save on interest charges and ultimately become debt free.
Second, asking for a credit limit increase could be dangerous if you're not in control of your spending. If you use the possibility to charge more as a way to spend more, it could result in you getting deeper into debt and spending more of your hard-earned money on credit card interest. So be sure you aren't going to max out your cards before you ask for a line increase.
Make your request today
If you're confident you can be responsible with your larger line of credit, there's no reason not to ask for a credit line increase right now. Just sign into your account or call your creditor as soon as you've finished reading this article. The worst that can happen is they say no, and the best possible outcome is a big boost to your credit score.
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