When a credit card issuer extends you a line of credit, they usually place a limit on the amount of money you can borrow at once. Called a "credit limit," this numeric figure represents the total balance you can carry on your card at any given time. If you should happen to try to spend more than your credit limit, you could face a denial at the register or incur a fee called an "over-the-limit fee."
If your credit limit is lower than you wish it was, you may want to consider asking your card issuer for a credit limit increase. With a reasonable increase, you may be able to spend more and make larger purchases without worry of reaching your limit—or going over.
Likewise, some people ask for a credit limit increase just to lower their credit utilization rate—or the portion of their credit limit they've used on purchases—because it can impact their credit score. If you owe $3,000 on a credit card with a $10,000 credit limit, for example, your utilization rate is 30%. But if your credit limit is raised to $15,000, your utilization immediately goes down to 20%. In most cases, a lower credit utilization rate can help boost your credit score—and quickly.
When to Ask for a Credit Limit Increase – and When Not To
But, how do you know it's time to ask for an increase in your credit card limit? Here are three signs you're ready… and a few signs you're not.
You're ready to ask for a credit limit increase if…
- You have a solid history of repayment. While banks are sometimes hesitant to offer additional credit to newbies, having a solid history of repayment can help tip the scales in your favor. If you've been making on-time payments religiously for twelve months or longer, you may have proved yourself enough to get the credit limit increase you deserve.
- Your income has increased. If your income has increased since you first applied for your card, you have a solid case for asking for a credit limit increase. With more money coming in, you can afford to make a larger payment if necessary. You may need to provide proof of your larger income to your card issuer, but you'll likely get a credit line increase if your new income is high enough.
- Your credit score has improved. When you use credit responsibly for a long stretch of time, it's possible to improve your score. If your credit score has improved since you first applied for your credit card, your card issuer may approve a credit line increase if you ask them. With a higher credit score, you're seen as more trustworthy and capable of repayment.
Asking for a credit limit increase may be a bad idea if…
- Your credit score has dropped recently. If your credit score has been on a downward slide, you should probably wait to ask for a credit limit increase. Most card issuers will see your bad credit as a sign of increased risk and decline anyway. The best thing you can do is take steps to improve your credit for now. Once you're back in good standing, you can ask at that time.
- You're in between jobs. If you don't have a job, it's unlikely you'll qualify for a credit limit increase. Most card issuers will ask your current income before processing your request, and an income of zero won't help you get the credit limit increase you want. If you're in between jobs, it's best to wait until you're earning again to ask.
- Your credit utilization is especially high. When your credit utilization is especially high, card issuers may see that as a sign of distress. As a result, they might be hesitant to give you more available credit.
- You have a bunch of new credit already. Since "new credit" makes up 10% of your FICO score, opening several new cards can ding your score temporarily. And when you have several new lines of credit open, your card issuers might be hesitant to increase limits on any of them.
If you're not worried and feel you're ready, asking your card issuer for a credit line increase is the only way to find out if you qualify. Most of the time, you can reach the appropriate department by calling the number on the back of your card and following the prompts until you reach a customer service representative. Once you tell them what you're after, they can connect you to the right place.
If you're in the mood for a credit limit increase, it's important to ask yourself why. Do you really need more credit? Or, should you try to be more disciplined with the credit you already have? Only you can answer those questions.
At the end of the day, a credit limit increase might make your life easier in some ways. But, if you use it to get deeper into debt, you may regret asking for a credit limit increase in the first place.
It's also important to know that, in certain cases, receiving a credit limit increase comes at the cost of a hard inquiry on your credit report. If you have too many hard inquiries, your credit score may lose a few points temporarily. So before you ask for a credit limit increase, ask your card issuer if a "hard inquiry" or a "soft pull" will result. If a hard inquiry is the answer, consider whether it's worth that temporary ding on your credit score—especially if you're about to apply for a mortgage or car loan.