Everything You Need to Know About Increasing Your Credit Card Limit

Understanding how credit works can be confusing for those who are just starting their credit building journey. If you ask “what’s the best way to build your credit” it’s likely you’ll hear about applying for a credit card with the hopes that over time, you might be able to raise your credit card limit. 

Increasing your credit card limit is one way to improve your credit score, but there are pros and cons to it that you should know about. Let’s go over the benefits and drawbacks of increasing your credit card limit so you can make the best financial decisions for your future. 

Scroll down or use the links below to navigate where you want to go!

1.  The Benefits of Increasing Your Credit Card Limit 
2. The Cons of Increasing Your Credit Card Limit 
3. How Can You Increase Your Credit Card Limit?
4. Confidently Take The Next Steps 

The Benefits of Increasing Your Credit Card Limit

Most people’s credit goal is to reach a score above 700, placing them in the “good” credit score range. This opens up many possibilities for your future by allowing lenders to have confidence that you’ll pay back what you’ve borrowed.

Opening up a credit card line is a small step in the right direction towards building credit, as it adds a different type of credit to your credit report.

However, there are 5 factors that determine your credit score, and having different types of credit on your report only makes up 10% of your score. With the right strategy, you can make this small part of your credit score work towards your advantage.

Increased Spending Power

A big benefit of a credit limit increase is having more financial flexibility or the ability to make larger purchases. Improving your buying power can also help you stay prepared for emergency situations. For instance, one day you might run into car problems that could seriously derail your plans if you don’t have the funds available to fix the problem early on. It’s always better to be prepared ahead of time!

Alternatively, you may want to increase your credit limit if you frequently come close to the current spending limit, even if you are paying off your balances in full each month. While you responsibly pay off your balances consistently, lenders don’t want to see you constantly using your entire line of credit.

Lower Debt-to-Credit Ratio

As mentioned above, it’s important to show that you’re not using your entire line of credit. The amount of credit you’re using compared to the amount of credit you have available is referred to as your “debt to credit ratio” and is calculated by dividing your total outstanding debt by your total credit limit.

For example, if you have a credit card with a limit of $10,000 and you have a balance of $3,000, your debt-to-credit ratio would be 30% ($3,000 / $10,000). This means that you are using 30% of your available credit. Ideally, you should strive to keep your debt-to-credit ratio between 10-30%. 

A lower debt-to-credit ratio is better because it shows that you are using a smaller portion of your available credit and may be less likely to get into financial trouble.

The Cons Of Increasing Your Credit Card Limit

It’s important to make calculated, educated decisions before reaching out to your credit card company. Before you get excited and give your credit card company a ring, consider the potential drawbacks to increasing your credit limit.

A Surprise Dip in Your Credit Score

You may be disappointed if you decide to increase your credit card limit only to see that you’ve lowered your credit score from the “hard pull” or “hard inquiry”  that’s required to increase the limit of your credit card.

When you request a credit limit increase, your credit card company may pull your credit report for review from one of the major credit reporting agencies, such as Equifax or TransUnion. The impact is mild and can lower your credit score by a few points. The impact usually only lasts for a few months, but can be more than offset by having a better debt to credit ratio.

Opportunity to Accumulate Credit Card Debt

One potential downside to increasing your credit limit is that it may give you more opportunities to make financial missteps that lead to debt. If you’re new to money management, it’s important that you don’t get carried away with your spending or else you may find yourself in a hole that’s hard to get out of.

If you can’t pay off your balances in full each month, or if you have other outstanding debts, it may not be a good idea to increase your credit limit. However, if you have been granted a credit limit increase, it may be because you have a good track record of responsible credit management.  Just continue to use credit responsibly!

Take Our FREE Credit Literacy Quiz!

In just a few minutes, discover your credit knowledge level and get instant access to a FREE credit education course tailored to you!

How Can You Increase Your Credit Card Limit?

Now that you have a well-rounded understanding of the pros and cons of increasing your credit card spending limit, it may just be time to reach out to your credit card company. Here’s how you can successfully prepare to ask your credit card company for an increase.

Gather the Information They’ll Need Ahead of Time

Credit card companies will typically request certain information from you. Make sure you have this information readily available when you apply for a credit limit increase:

• Proof of your current annual income
• Proof of your current employment status 
• Records of outstanding debts or payment obligations

Approaching lenders prepared can save you the headache of backtracking to find this information in the middle of your application process.

Consider the Time of Your Request

To increase the likelihood of being granted a credit limit increase, it may be helpful to request an increase when your financial situation is strong. For example, if you have recently received a promotion or raise, or if you have recently paid off a student loan or car payment, you may be in a good position to request a credit limit increase.

Additionally, it may be helpful to consider the following factors before making a request:

• Credit standing: If your credit is in good standing,  you may be more likely to be approved for a credit limit increase with a high credit score and a history of responsible credit management. 
• Length of time with the credit card: If you have had the credit card for a long time and have demonstrated responsible credit management, you may be more likely to be approved for a credit limit increase.
• Income: If your income has increased recently, this could be a positive factor when considering a credit limit increase.

There are special cases when your credit card company may actually increase your limit on their own. This shows that your lender really trusts you and your ability to make sound financial decisions. Ultimately, this would be the best time to improve your debt-to-credit ratio naturally.

However, if you feel that you would be tempted by the increased spending power, you can always give them a call to decrease your spending limit back to where you feel comfortable.

Don’t worry – a decrease won’t negatively impact your score as it’s considered a “soft pull.” In fact, most lenders are willing to have a conversation with you to help you assess your financial future with them, so don’t hesitate to make that call and discuss it with them!

Confidently Take The Next Steps

It’s always been our goal to help everyone make sound financial decisions, especially when simplified credit education isn’t necessarily accessible to everyone. Before approaching your credit card company, make sure you’re clear about your current credit standing, and have a plan for your financial future. 

Lastly, don’t forget the power of your rent and what good your on-time payment history can do for your credit.  RentReporters will add up to 2 years of rent payment history to your credit instantly and then report your on-going rent every month, accelerating your credit score growth.

Establishing good credit is a commitment that requires patience and time.  We hope to get you there a little faster by making sure you get credit for the rent you already pay. Coupling our service with the educational resources and financial tips we provide is the best way to make informed decisions to achieve your credit goals.