How to Increase Credit Limit: A Complete Guide
As Americans, we sure have a love-hate relationship when it comes to our financial freedoms and how we utilize them. Our total credit card debt is continually on the rise due to unnecessary spending, but that's still good news: as consumers, we can choose to cut our spending and pay down our balances. Yet maybe that scenario doesn't apply to you because of savvy spending habits, mindful money management, or an uptick in increased income. Either way, you may be looking at how to increase credit limit for whatever reason, and this matter needs the right approach.
There are a few ways to go about increasing your credit limit as well as a few factors to take into consideration. This should be a well thought out decision before even making the attempt. Being turned down along with making numerous attempts will have adverse effects upon your credit score, a big factor you want to avoid. Whatever the reason for increasing your credit limit, keeping a decent credit score or improving upon it should be a defining factor. Evaluate the reasons for wanting to pursue an increase, make sure they're in your best interest, and be confident this will be beneficial to your financial stability.
Make Sure It's The Right Decision
So, the first step in deciding how to increase credit limit comes down to making sure it's the right decision. If you're consistently in a state of financial hardship, struggling to make ends meet, need a monetary boost, a higher credit limit won't solve your problems. In fact, quite the opposite: it will exacerbate the problem. Think of how much more difficult it will be to keep up with the higher monthly payments along with the dangers of falling behind, only to have sabotaged your current credit. Instead, if you're looking for financial flexibility or a lower utilization, then go ahead and seek a credit increase.
Understand and know your credit utilization ratio: the measure of how much you owe on your credit cards, compared to your card's limits. Even if you're paying off the balances, spending most or all of your available credit each month can damage your credit score. Good credit utilization uses 30% or less of the limit on each card and overall. If you're maxing out your cards, you're putting yourself at a higher credit risk with a lower score, making it harder to qualify for the best loan rates, insurance policies, and financial products.
The age-old adage, "timing is everything" applies here as well. If possible, wait until you've received a pay raise. If your credit is in good standing and you have a good track record of being a responsible card holder (at least six months in), then that's the timing you're looking for. Sluggish, lagging credit, a drop in income, financial hardship: that simply is not the right time to seek out an increase. Avoid taking the chance when you're at a risk of being turned down so as not to damage your credit score. When it comes to how to increase credit limit, the major why should be on improving your credit score.
On that note, requesting an increase can take its toll on your score, so making sure it's the right decision before moving forward is very important. Requesting can initiate hard inquiries on your credit report, knocking off points. Multiple requests to other lines of credit add up as well, and in the end that can have a negative impact overall.
How to Increase Credit Limit and Why
Boosting Credit Score
So now you've assessed your credit situation and have decided you're an ideal candidate for an increase. Since you're not doing it to squeeze in extra unnecessary spending or because of ongoing financial hardship, let's look at why you should be increasing it then. It starts with being a responsible card holder having good or excellent credit. A higher limit can keep your utilization low, boosting your credit. Credit utilization has a major impact on your score. A higher utilization might indicate a sign of financial struggle, showing too much reliance on borrowed money and living beyond your means. A lower utilization score, preferably 30% or lower, shows you're living within your means and affords more confidence to the lenders working with you.
If you're still within your means but maxing out your credit cards each month, that can be problematic as well, even if you're paying off the balance each time. Your credit utilization is maxed out, and as we already know, an unfavorable situation to be in. So let's look at how a credit increase can help alleviate this situation and work favorably for you. If you're maxing out at a $1000 limit each month, increase your balance to $2000, yet stay at your $1000 spending limit, you've just cut your utilization score in half, to 50%. Of course, we'd like to do better than that still, but it's a good start with a lower utilization rate, and a step forward.
Sure it's great in theory to have your expenses precisely planned out, but emergencies happen and being able to address the situation immediately can save you a world of trouble down the road. Whether you're on a trip with a sudden change of plans or broken down in a strange place, having that added security can be a real lifesaver.
Better Financial Opportunities
So now you've boosted your credit score, and things are looking good. You know what else looks good along with that perk? Better chances at lower interest rates on loans and mortgages. Financial opportunities can be easier to come by along with more affordability.
Ways To Increase Your Limit
Start With Being A Good Customer
It starts with having been a loyal customer for at least 6 months to a year. Having never missed a payment along with paying the balance in full each month qualifies as such. Utilizing 30% or less of your limit, and an increase in income that can support the higher limit are all great factors in being considered for a credit increase.
Online Or Via Phone
You have a couple of options in how to increase credit limit depending on how you prefer to communicate. Logging into your card account online, there will be an option to submit a request. This way is very matter of fact with no wiggle room, so make sure all of your info is up to date. Your other option is to call the number on the back of your card and speak to a customer service representative. You can ask right away if you're eligible and they may inquire for a reason for your request and if your income has increased. Don't tell them why you need it, tell them why you deserve it! Go in knowing how much of an increase to request and don't be greedy. Not a hard and fast rule, but a 10 - 25% increase is a reasonable rate.
New Card Or Balance Transfer
There's the option of a new card with a higher credit limit. There's even a chance for a new card where the limit isn't higher than the current card you carry, but it's still beneficial in increasing your overall credit. If applying for a new card with a current lender and upon approval, you can reallocate a portion of your new credit line onto an existing card and receive substantially more than originally requested. With a balance transfer, you're simply transferring your balance from one card to another. You can be exempt from interest rates for up to a year when moving the balance from one card to the next. Be sure to keep a lookout for a balance transfer fee and if it's worth it.
Automatic Credit Hike
Before you go applying for a credit increase, check to see if your card lender hasn't already automatically given you one. Accounts are generally reviewed every 6 months, and those in good standing can naturally receive limit hikes periodically. When you've had your card for a while and have been using it responsibly, there's a good bet they've increased your limit without you having to go through the hassle of inquiring for one!
When it comes down to how to increase credit limit, don't rush in hoping for the best. It won't be as simple as being turned down since it can cause negative credit consequences, and that's a frustrating burden to deal with. It's easy for a credit habit to spin out of control when what you want to be doing is wisely using that luxury to increase good credit. Finances have a huge impact on our lives that affect us immensely. You don't have to stress and struggle with those worries if you're diligent in your awareness and upkeep of your credit.
Make the right decisions now, so later on in life, you can splurge, relax, and enter the golden years financially confident and comfortable. Knowing how to increase credit limit can be essential to your important investments and purchases.