When you use a revolving credit account, your credit limit is the amount you have available to spend. But perhaps you want a higher credit limit to improve your credit utilization or afford more significant expenses. Learn how to increase your credit limit today!
How Does My Credit Card Debt Affect My Credit Report?
Borrowers need to understand how using their credit cards directly affects their credit. For example, a higher credit line can benefit borrowers immensely. Not only can you get more money to spend on purchases, but you can improve your credit score.
The amount of credit card debt you have greatly affects your credit score calculation. It’s essential to understand how to manage a credit card wisely if you want to get a credit line increase from your credit card issuer.
5 Factors That Affect Credit Scores
Credit-scoring companies each use a different credit scoring model to calculate scores. However, these are the five most common factors that affect your total credit score calculation:
Your payment history is the most important factor for credit scores, accounting for 35% of your total calculation. Paying on time is crucial for getting and maintaining an excellent credit score. Multiple missed, or late payments can make it harder to qualify for higher credit limits and better repayment terms. Credit card issuers typically provide more money and better benefits to borrowers that display financially responsible behavior.
Your total credit card debt counts for 30% of your credit score. If you want a credit limit increase, you first need to obtain a good credit utilization ratio. Credit utilization is the amount of credit you are using compared to your total available balance. But how much credit card debt is too much? Using more than 30% of your available credit can decrease your FICO score and prevent you from getting more credit to spend.
Credit History Length
The length of your credit history makes up 15% of your total credit score. Keeping accounts open demonstrates that you are capable of managing your finances successfully. However, you can close a credit card if you want to reorganize your finances. Just remember that your credit score may dip if you close one of your oldest accounts.
The type of accounts you have counts for 10% of your credit score calculation. Ideally, lenders want to see you manage a mix of installment and revolving accounts. Installment accounts provide one-time payments, whereas revolving accounts provide revolving balances. Having different financial accounts on a credit report can benefit your credit.
The number of inquiries you make in a year counts for 10% of your credit score. Applying for a new account can decrease your credit score by a few points and impact your credit report. So you may wonder, “Does asking for a credit limit increase hurt my credit?” The answer is no! A higher credit limit impacts your credit utilization, but not your number of credit inquiries since you are not opening a new account.
Do I Qualify for a Credit Limit Increase?
Before applying for a credit line increase, it’s beneficial to know why credit card issuers offer increases. The qualification requirements vary per lender, but most examine your income, credit score, and payment history. If any of the following situations apply to you, you may stand a good chance of getting an increased credit line.
If your income recently increased, you may qualify for a credit limit increase! Having more money on your credit card means you can make more transactions without affecting your credit. Lenders need to know you are capable of repaying your credit card balance. A higher income proves you have the financial means to pay off your debt.
Low Credit Utilization
Maintaining a reasonable credit utilization range can help increase your credit limit. If you max out your credit cards, credit card issuers may consider your spending habits financially risky. You should use no more than 30% of your total credit limits. If you have multiple credit cards, divide your entire balance by your full credit line and multiply the answer by 100 to get your credit utilization ratio.
Credit Score Increase
If your credit score has improved since you opened your credit card account, you can confidently request a credit line increase. Your credit can improve for various reasons, such as making continuous on-time payments and lowering your credit card debt. A higher score demonstrates that you are financially secure and responsible, and a creditor may agree to a credit increase.
Excellent Payment History
Having an exceptional payment history can help you get more money to spend because a creditor will trust you to pay your bills on time. On the other hand, multiple late payments on a credit report indicate that the borrower is financially unstable. While credit card companies typically issue credit increases, they can also decrease your credit limit! Missing too many payments can result in a smaller credit line.
Large Monthly Payments
You may qualify for a maximum credit line if you commit to paying down your credit card debt through large payments. Although creditors allow borrowers to make minimum payments, paying more significant amounts shows that you are financially responsible and can handle higher credit limits.
How to Request a Credit Limit Increase
A credit limit increase can help you get the money necessary to afford a dentist or a new laptop. Some credit card companies offer automatic credit line increases, but you can also request an increased credit limit directly.
Request a Higher Credit Limit Online
Some credit card issuers offer borrowers the option of requesting a credit line increase online. Log onto your online account and see if there is an option for a “Request Credit Line Increase” link. When you make a request online, you will typically have to provide your total annual income, employment status, and monthly housing payment.
Call Your Credit Card Issuer
The back of your credit card has a customer service number. You can call that number to request a credit limit increase. The customer service agent will review your credit card account information and ask a few questions. You may have to provide a reason for the credit increase and income information.
Check for a Credit Limit Increase Online
Many credit card issuers provide an automatic credit line increase a few months after your account opening. Check your credit card account to see if you received a higher limit without notice.
What If I Don’t Qualify for a Higher Credit Limit?
If you have a credit card but want more credit to spend, you can request a limit increase from your card issuer. However, it’s possible that you may not qualify for a higher balance just yet. Credit card companies deny increasing your credit limit for various reasons, such as the ones mentioned below.
Decreased Credit Score
Suppose your credit score has decreased significantly since you obtained your credit card. In that case, you may not qualify for a new credit line. Credit scores fall by multiple points when borrowers miss payments, make too many inquiries, and take on too much debt. A few points deducted from your credit score is not the end of the world, but a considerable decrease can be a red flag to creditors.
High Credit Utilization
Using a majority of your credit limit can disqualify you from receiving a credit increase. Borrowing more money than you are paying back can make creditors wary of offering more. However, paying down your credit card debt can improve your chances of getting a maximum credit line and improve your credit score!
Multiple Late Payments
Missing too many payments can deter you from getting a credit increase and a higher FICO score. Multiple late payments on credit cards and other loans, such as online no credit check loans, appear on credit reports. Credit card companies view late payments as a sign that a borrower is financially irresponsible and cannot handle more debt.
Previous Credit Increase
If you have already received a credit limit increase, you may not qualify for another just yet. Most credit card companies offer one or two credit increases per year. Offering too much money too soon is financially risky for creditors, so credit increases are given sparingly.
The Bottom Line
When you want to increase your current credit line, you can request a credit limit increase from your credit card issuer. However, there are various qualification requirements you may have to meet in order to get a higher spending balance.
Increases are typically awarded several months after an account opening. When you request more money, your card issuer will analyze your spending behavior, payment history, credit score, and income. And even if you are a responsible cardholder, you can get denied an increase if you already received one or your financial situation remains unchanged.
Suppose you are denied a credit limit increase. In that case, there are alternative ways to get the emergency cash you need and improve your credit simultaneously. You can apply for low-interest personal loans with bad credit or establish a budget plan to quickly pay off debt and keep more money in your wallet. Remember that you can always apply for a higher credit line in the future, so focus on improving your finances to reap the rewards later!
What Affects Your Credit Scores?│Experian