If you’ve had a credit card for a while and always make payments on time, increasing your credit limit may be an option to consider. Obtaining a higher credit limit can be helpful or harmful to your financial situation depending on how you’re using the card.
Luckily, there are a few different ways to increase your credit limit so you’ll have more chances of being successful. The process is very simple, but it helps to have a clear understanding of why you’d like a credit limit increase and how to use this to your advantage.
Why Increase Your Credit Limit?
With any credit card, the user is given a credit limit. This limit represents the maximum amount you can borrow. It’s important not to exceed your limit or max out your card because this could hurt your credit and leave you with a massive bill to pay including interest charges.
Another reason why your card spending should not meet or exceed your credit limit is because it can hurt your credit score. According to MyFICO, credit card utilization, or how much you owe is a factor that impacts 30% of your credit score. A good rule of thumb is to always keep your credit card utilization below 30% of your total credit limit.
This means if you have a $1,000 credit limit, you should spend no more than $300 per month and pay the balance off promptly. What if you want to spend more than $300 per month and can afford to pay it back in a timely manner? This is where a credit limit increase will come in handy.
If you were able to increase your credit limit to $1,500 or $2,000, spending $300 would only make up 15% or 20% of your total credit limit which places you further below the recommended 30% threshold. Increasing your credit limit can give you more borrowing power and lower your utilization rate. Even if you don’t intend to spend more, a credit limit increase can easily help you increase your credit score by decreasing your overall utilization.
Ways to Get a Higher Credit Limit
If you want to get a higher credit limit, there are a few options that could help. You just need to have either a credit card or some positive credit history for card issuers to consider. Without these two things, it will be harder but not impossible to convince a bank or credit card company to approve you for a higher credit limit.
Place a Request With Your Card Issuer
Most card issuers will be willing to increase your credit limit if you request it. This process is even simpler if there’s an option to do it online. You can try logging into your credit card account and see if there is an option to submit a credit limit increase. Other times, you may receive an email promotion or offer about increasing your limit and can make the request that way.
If you don’t see any way to submit a request online, call the company and see if they can grant your request over the phone. Keep in mind that asking for a credit limit increase doesn’t always guarantee that you’ll get one. Card issuers like to see that you’ve been using the card regularly, keeping your utilization low, and making timely payments before they agree to your request.
Increase Your Security Deposit
If you have a secured credit card, you may be able to increase your deposit amount to raise your credit limit. Secured credit cards give you a few deposit amount options that can range anywhere from $100 to $2,000 on average. If you want a higher limit, you can add money to your deposit amount.
A few secured credit cards may even increase your limit for you or allow you to switch to an unsecured card if you’ve been using the card wisely for a few months.
Apply For a New Card
A credit limit increase doesn’t have to occur for the same card. If your credit score has gone up, you may qualify for a higher limit with a new card. This means, if you’ve done well with a $2,000 limit, for example, a new card issuer may see that information on your credit report and approve you for a card with a $3,000 or $5,000 limit.
This is especially the case when you open a different credit card that’s from the same bank or card issuer. Applying for a new credit card will put a hard inquiry on your credit report, so make sure you are comfortable with this before proceeding.
How Is Your Credit Limit Determined?
Credit card companies determine your credit limit through an underwriting process. Extending a line of credit to someone puts the company at risk if the money does not get paid back. This is why card issuers will closely consider your credit score and credit report when determining your limit.
Most companies have a process that involves mathematical formulas or an algorithm that helps them determine how much a cardholder’s credit limit should be. This is why if you apply for a credit card online and get approved, it just takes seconds and you’ll instantly know your credit limit.
Generally, the higher your credit limit, the more the credit card company trusts you to charge your card and pay the bill on time.
How to Improve Your Chances of Getting a Credit Limit Increase
The best way to improve your chances of getting a credit limit increase is to maintain a healthy credit score. Aim to keep your credit score above 700 by paying your bills on time and keeping your total utilization below 30%. If you have existing debt or negative marks on your credit, paying these balances down first could also help boost your credit profile.
If you’re looking to get a credit limit increase for a particular card, start trying to pay more than the minimum each month. This will show the credit card company that you can afford to make larger payments if given a larger credit limit.
Request An Increase When You’re Ready
A higher credit limit always comes with the temptation to spend more as well. However, you can use a credit limit increase to improve your credit score and lower your overall utilization. Focus on keeping your total spend low and pay as much of your bill off as you can each month. These ideas will help you prepare and execute the best strategy to secure a credit limit increase when you’re ready.