Next to paying bills on time, few things can tank your credit score faster than running up debt balances. In fact, credit utilization, or debt divided by total available credit, accounts for 30% of your FICO credit score. One common tactic cardholders use to improve their credit scores is to request a credit limit increase. But will doing so hurt your credit score?
In the previously recorded Facebook Live video below, Motley Fool analysts Nathan Hamilton and Michael Douglass answer a user-submitted question about credit scores and increasing your credit limit.
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Michael Douglass:Daryl asks, "Willasking for a lineincrease account as an inquiry?" I'mtaking that to mean increasing the amount of credit available to you on a credit card.I can actually answer this for me personally,because me and my wife were talking to our credit unionabout this and they said, "Well,sometimes it will result in a hard inquiry, andsometimes it will result in a soft inquiry, it just depends basically on how ourautomated system works." The fact of the matter is, it may. That's something, when asking for that, you need to consider. In my shoes, for a minute. I'mlooking to reduce mycredit utilization in part because I'm planning to, hopefully, buy a house in the next year or so. It would be worth it to me,in my personal circumstances, to go ahead and get that increase,even if it resulted in a hard inquiry and reduced my credit score by a little bit fora couple of months, because I'm not planning onbuying a house tomorrow, I'm planning on doing it six to nine months down the road when, frankly, that should be largely rolled off as an issue. Ifyou're trying to buy a car tomorrow,it's a different ball game.Nathan Hamilton: Yeah. And more times than not, there's not a hard inquiry. Itdepends on the bank. WhatI would ask is, whenyou're looking for a credit limit increase, just ask your bank, is there a hard inquiry for this credit limit increase, to see if it's available? If there is, OK, then there's a potential impact. If not, then you're more than fine, and there is no impact, there'snothing reported to your credit report.