If your credit is good, it might be the right time to consider a credit limit increase. While some credit card issuers automatically increase your credit limit when they feel you are a good risk, others will only raise it when you ask. With some, you may be able to make the request right online. With other issuers, you may need to call to request a credit limit increase. Increasing your credit limit on a credit card not only gives you access to more cash, but there are also other benefits. We will examine three benefits below.
1 Greater spending power
More money at your disposal doesn’t mean you need to carry more debt. If managed wisely, it can be a convenient way to make large purchases. It can also be a great backup in case of an emergency. In this time of pandemic when handling cash may not be something you want to do; an increased spending limit may be a great way to take advantage of using your credit card instead of cash for all purchases.
2 Helps lower your credit utilization
If you’ve read any of our blogs on credit scores, you know that credit utilization is a big factor in your score. In fact, credit utilization can impact up to 30% of your credit score. In case you don’t know, credit utilization is the amount of revolving credit you owe divided by your credit limit. It applies to the outstanding balance of all of your credit cards, not just one individual card. For this reason, transferring the balances from one of your cards to another of your existing cards will not help your credit utilization ratio as much as a higher credit limit. If you handle your credit responsibly, an increased limit can help improve your credit utilization ratio and may improve your credit score.
3 Build more credit card reward points
Let’s face it, we all love credit card rewards. A big benefit of a credit limit increase can be an increase in the reward points you can accumulate. This is especially true if you plan on using your credit card for more expenses and you plan on paying your credit card balances on time and in full every month. There’s nothing wrong with taking advantage of credit card use for travel or product rewards, cash back, or gift cards. Again, a larger limit handled sensibly, can reap some major rewards. Just keep in mind, maxing out your credit card, even if you pay it off, may hurt your credit utilization. For this reason, request a high enough limit that you are not maxing out.
Are the benefits of a credit limit increase worth it for you?
When considering an increase in credit limit to help your credit score, it’s important to remember that the worst thing you can do for your credit score is missing a payment. On the other hand, if you know you can handle your finances responsibly and keep your balances low, increasing your credit limit can provide many of the benefits we’ve mentioned above. When you request a credit card limit increase, the issuer may look at your credit score and evaluate your credit history. This could result in a “hard inquiry” of your credit history, which may temporarily lower your credit score. The increase in your credit limit could then raise your score if your spending stays at the same level.
The issuer will want to know your income to be sure it justifies the increase. Your credit card issuer may even ask why you want the increase, so be prepared to answer. Be organized with all of the information you need before contacting your credit card issuer. Finally, the best time to request a credit limit increase is when you have good credit and have recently gotten an increase in income. If you have bad credit, a maxed-out credit card and poor payment history or your income has decreased, it’s not a good time to ask for that credit limit increase. The increase also brings the risk of assuming more debt, so be sure you want to take that risk.