When and How to Raise Your Credit Limit
By Marcia Frellick
November 14, 2012
You may not pay much attention to your credit limit: It’s there if you need it, but most people hope they won’t.
Yet with some strategic thinking, you can use your credit limit to your advantage and even use it to boost your credit score. Here’s when you might want to adjust your credit limit — and how to get your bank to work with you.
Why would I want to raise my limit?
If your current limit doesn’t give you enough wiggle room to meet your financial demands, it might be time to raise your credit ceiling. Some good reasons to do so include:
- Your new job comes with travel expenses: If you find yourself needing to pay for flights and hotels that will later be reimbursed, you will need to up your limit so your credit score doesn’t get dinged for narrowing the gap between what’s available and what you’re spending, says Bruce McClary, with ClearPoint Credit Counseling Solutions.
- Your financial situation has improved: Your card issuer likely hasn’t taken a look at your credit reports since you first got the account. So if your credit score has vastly improved by you making timely payments for a long period of time, odds are that your issuer will respond favorably to your request for a higher credit limit.
- You’re planning a big vacation: If you’ve kept your debt level low and have been paying on time, you might ask for a higher limit because you have some big expenses on the horizon. Just make a plan for paying off the new expenses.”Don’t just raise it so that you can have more credit. That could get you in a lot of trouble,” says Jana Castanon, community outreach coordinator for Apprisen credit counselors.
- You want to raise your credit score: The wider the gap between your balance and your available limit, the better your credit utilization, an important factor in your FICO score. Credit utilization is calculated by dividing the credit you’ve used by the credit remaining. The lower the number, the bigger the boost to your score.Castanon warns that there are better ways to raise your credit score than asking for a credit limit increase. Most importantly, paying off your balance every month will keep that debt utilization naturally low. Plus, making all payments on time, for instance, accounts for a big chunk — 35 percent — of FICO scores.
When to ask for an increase
The best time to ask for an increase is when it doesn’t appear that you really need it.
“If you’re maxed out with that card and you’re calling [the bank] at the eleventh hour, or when you only have a dollar left on your credit limit … they’re going to take note of that sense of urgency” and think twice about giving you the increase, McClary says.
It also shows poor financial management, he says, if you’ve let your debt get that close to your ceiling.
When you ask for an increase, your debt level should ideally be no more than 30 percent of your credit limit, McClary says.
On the flip side, there are times when you don’t want to ask for the increase.
Don’t ask for the increase if you’re anywhere near applying for a large loan, such as a mortgage. Lenders don’t like to see big changes in spending or available credit when they are evaluating your risk.
Also, don’t ask for a credit limit increase when you are behind on other bills. Make sure you’re presenting the best financial picture you can.
When you do ask for an increase, keep in mind that this should be a long-term change, McClary says. Too much tinkering with your credit limit might raise red flags and hurt your score. If you find yourself no longer needing that increase, set a lower imaginary ceiling and stick to it, he says.
How to ask for a credit limit increase
Start by calling the customer service number for your credit card issuer. Let the representative know you are interested in bumping up your credit limit, and he or she will walk you through the process and get your authorization to pull your credit file.
It’s almost like applying for a new account, McClary says. The company will pull your credit reports and evaluate how well you are likely to manage this new amount of credit. They’ll also look at your shopping patterns with the card to assess your risk.
You can sometimes get the approval within hours, depending on the creditor, McClary says. If you’ve had a great and long-standing relationship with the creditor, your chances are good for a quick approval, he says.
As for how much to ask for, avoid asking for a huge increase, because that might signal to a lender that you’re in financial distress.
“I would not go more than double your limit if your credit limit is at or below $10,000,” McClary says. He recommends using a worst-case scenario for determining the amount you should request. If you maxed out that new limit, could you afford the minimum payments? If not, shoot for less.
You can also throw the question to the bank, McClary says, and ask how much you qualify for. But be careful if it gives you a figure that’s much higher than you need.
When to say no
While there are plenty of reasons to raise your limit, you may also want to keep it from being raised by your issuer.
Your credit card company may send you a notification that your limit has been increased, and, while that may boost your ego, you may not want this for a couple of reasons.
One is that, before lenders decide whether you’re a good risk for a loan, they look at how much money is available to you. If you have a large credit limit, you have the potential to spend up to that ceiling, meaning you may not have the money to pay off the loan.
The other is the temptation factor — you may not want that extra room to spend.
To keep a lender from raising the limit, as soon as you open the account, spell out in a letter to your creditor (and follow up with a phone call) that under no circumstances are they to increase your limit without your permission, McClary says.
You can also ask for a lower limit when you first get a card, Castanon says. Just because you’re approved for $5,000 doesn’t mean you have to accept it. If a smaller limit helps you rein in spending, ask for one, she says.
Look for cheaper sources of money
If you’re planning big expenses on your card, there may be ways to get that money at a lower interest rate.
Shop around for an unsecured loan at a bank, compare the cost of using a home equity line of credit or consider borrowing from family or friends, Castanon says.
“[Credit cards are] not exactly the cheapest financial products out there,” McClary says. “You have to have some pretty concrete plans as to how you are going to keep those balances from rolling over so you’re not paying maximum costs for the money that you’re borrowing.”
Also, if you’re re-evaluating your credit limit, use the opportunity to shop around to see if you have the best deal out there. If you’re after a higher limit, and another card gives you that and better terms, it may be time to switch.