Editorial Policy

Looking for a Higher Credit Limit? 6 Do’s and Don’ts

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By Eva Norlyk Smith, Ph.D.
August 13, 2010

A few years ago, it seemed like limits on credit cards could only go up, up, and up. Along with easy access to great credit card offers, cardholders in good standing regularly saw generous credit limit increases without the asking.

Nowadays, it appears to be the exact opposite. More than 60 million cardholders have had their credit limit slashed over the past few years, and with credit card defaults still in record territory, card issuers are likely to continue to tighten lending standards. Furthermore, the rules for what triggers credit limit cuts have changed. Many of those hit by credit cuts haven’t necessarily displayed any of the typical “risk triggers” banks usually use to assess credit worthiness—such as regular late payments or high credit card balances.

Credit limit cuts aren’t just a major inconvenience, for cardholders with outstanding balances, they can impact credit scores as well. With the debt-to-credit ratio weighing in second among the most important factors contributing to FICO scores, credit line cuts are no small concern.

If you want to be sure to keep your current credit limit and preferably get a credit line increase; here are a few dos and don’ts to help bolster your credit line:

DO pay your balance off in full each month. This signals to card issuers that the money is there to support whatever credit activity takes place. Issuers grow wary as soon as a significant balance starts to accumulate on a card.

DO charge a lot. In the months leading up to requesting a credit limit increase, use your card a lot and charge up to 40 percent of the credit limit. Do this for 3-4 months, but don’t make it a habit, as raking up high card balances could hurt your credit score over the long term. (As a standard practice, keep balances at 10 to 30 percent of the credit limit). Continuously charging a lot and then paying off the balance in full sends a strong message to the card issuer, which may even trigger a credit line increase without you having to ask.

DON’T charge over 50 percent of your credit line. Frequently crossing the halfway credit limit mark raises a “red flag” for card issuers. Research reveals that cardholders who accumulate debt up to 70 percent or more on their card are up to 50 times more likely to default within the next to years, and credit card issuers are well aware of this danger. Stay in the safe zone and avoid triggering warning signals.

DON’T send in a payment late. Even though tardiness may not be linked to an inability to pay the bill, the credit industry perceives it as such. Late payments or missed payments are the early warning signs of future defaulters, so accounts with frequent late payments are perceived as “higher risk.” The more of a gamble a cardholder appears, the less likely the issuer is to extend more credit; in fact, regularly paying late is sure way to get your credit limit decreased.

DO call and ask. These days it is much rarer for card issuers to automatically increase credit limits, so do call and ask you card issuer for an increase. Most credit card accounts are eligible for credit limit increases once a year, so if you’re looking to steadily increase credit limits, make a note of the date of your call and call back next year.

DON’T Do a Hard Pull. In many cases, customer service reps will be able to tell you right away if you qualify for a credit limit increase based on your past payment history and account usage. In some cases, however, they ask your permission to pull you credit report to review your credit history. If you give the card issuer your permission, it would be considered a so-called hard pull, which detracts as much from your credit score as were you to apply for a new credit card. If this is the only credit inquiry you plan to have in a year, this may be okay. However, unless you really need that credit limit increase, it’s best to stay clear of having your credit report pulled. Simply ask when the account may be eligible for an automatic credit limit increase and then call back later.