Credit limit increase: Pros, cons and when you should do it

Your credit limit is the loan amount you can take out on any lines of credit you have. A credit card can have a line of credit anywhere from a few hundred dollars to thousands of dollars. So, how important is it to have a high line of credit and when should you get a credit limit increase?

You may be surprised to know that a higher credit card limit that is used responsibly can lead to more opportunities for loans in the future. We break down why a higher credit card limit could be a really good thing for you and how to know when it’s the right time to increase your credit limit.

Does a credit limit increase affect your credit score?

Yes, a credit limit increase can impact your credit score in two ways: it can increase your score by lowering your credit utilization ratio, and if the credit card company needs to pull your credit, then your score could temporarily decrease.

When could a higher credit card limit boost your credit score?

In the long run, a higher credit card limit could significantly help your credit score. Many factors go into your credit score, including credit utilization ratio, which makes up 30 percent of your score. Utilization is one of the most important factors in a good credit score. It is the ratio of credit you’re currently using to the total amount of credit available to you. Utilization takes into account all of your lines of credit (any credit cards and HELOCs).

For example, if you have $5,000 of credit card debt and a total credit card limit of $20,000, your utilization ratio is 25 percent. A good credit utilization ratio is typically under 30 percent. Any ratio less than 10 percent is even better. By asking for a credit limit increase, you can help lower this ratio, as long as you don’t increase your spending.

When could a request to increase your credit card limit hurt your score?

Sometimes a credit line increase request will require a hard credit pull. This means that your credit score could see a short dip because of this credit inquiry. If you are in the market for a large loan, such as a mortgage or auto loan, then you may want to avoid hard credit pull situations for the time being. Before you ask for a higher credit card limit, be sure to ask your credit card issuer if doing so will require a hard credit pull.

A higher credit card limit also could hurt your credit score if you spend more and don’t pay your bills on time each month. This is because payment history is the most important factor to your credit score. Also, if you know the new credit will increase your temptation to spend more, then a higher credit limit could hurt you in the long run.

What factors determine if you’re eligible for a higher credit card limit?

Credit card issuers will look at the following factors to determine if you are eligible for a credit limit increase:

• Gross annual income
• Monthly housing payment
• Credit score
• Usage history (Do you use the card frequently? Do you consistently make payments on time?)

If these things moved in a positive direction for you in the last year, then you’ll be more likely to get approved for an increase.

When should you increase your credit limit?

It’s important to carefully plan the right time to move forward with a credit limit increase. A few things to consider:

• You have a good credit history with your credit card issuer. That means you’ve had the card for at least a year, and you making all of your payments on time.
• You’re not looking to make a large purchase like a new home or a new car. As we discussed, a credit limit increase could hurt your credit score, and you wouldn’t want to put your mortgage or auto loan in jeopardy.
• You recently got promoted or received a raise. Your increased income will indicate to your credit card issuer that you’ll be able to cover any additional spending on your card.
• You’re consistently spending above the recommended 30 percent utilization ratio threshold we talked about above.

Can a credit card limit increase automatically?

Sometimes a credit card issuer will alert you that they are increasing your credit card limit. They will do this if you’ve consistently made payments on time and if you use the card frequently. When you accept these credit limit increases, you could help your credit score without doing much legwork.

How can you increase your credit card limit?

If you have not had an increase or have not opened new lines of credit recently, then you can submit a request. A simple phone call to your credit card issuer will work. There are also some financial institutions that will let you submit a request online or through their app.

Your issuer could deny the increase, propose a lower number if you asked for a specific limit, or give you exactly what you want.

Getting a higher credit card limit is just one of the ways you can help your credit score. It’s important to know how your credit score is calculated. Once you know the basics, you can score an even higher credit score. 

Want to learn more?

• What you need to know about card limits
• When is your credit score pulled?
• Life hack: How to use credit cards like cash

Maggie Tomasek is the Senior Manager, Brand Communications, at Alliant. She began her career as a journalist for newspapers in Utica, N.Y., Des Moines and Cincinnati before moving to Chicago in 2009. Maggie is an eight-time Chicago Marathon finisher and a lifelong creative writer with a passion for comedy. Her mom instilled in her a great sense of fiscal responsibility, and her big sister told her to throw that responsibility out the window every once in a while in the name of life experience. So far, that combination of financial advice has worked out pretty well for her.