Credit Limit Increases: What to Know
One of the many questions we receive at Equifax involves credit limit increases. Specifically, consumers want to understand more about requesting a credit limit increase, or when they might receive one from a credit card company.
“One of the many things to consider with a credit limit increase is understanding your own mindset when it comes to credit,” said Nancy Bistritz-Balkan, vice president of Consumer Education at Equifax. “If you’re viewing a credit limit increase as an opportunity to spend more without a plan to continue to pay off the debt responsibly, a credit limit increase may not make sense.”
Will a credit limit increase affect credit scores? It all comes down to something called your debt to credit utilization rate. That’s the amount of credit you’re using compared to the amount of credit available to you. Generally, this is one of the factors that impacts credit scores, and creditors prefer to see a lower ratio of how much debt you have compared with how much available credit you have. Why? Remember: Before extending credit, lenders want to know that you can responsibly manage the debt you do have – and that you aren’t overextending yourself, financially.
How to get a credit limit increase
There are two ways to get a credit limit increase. One is asking for a credit limit increase on an existing credit card – usually one you’ve had for at least a few months.
When you make this request, the credit card company may review one or more of your credit reports as part of their evaluation. Whether this is a “soft inquiry,” which does not impact credit scores, or a “hard inquiry ,” which may impact credit scores, varies based on the creditor's policies. If you’re considering a credit limit increase request, consider checking with the credit card company to learn more about their policy.
The creditor may also request proof of your annual income, employment status, and monthly rent or mortgage payments when reviewing your request.
You might also consider checking your own credit reports before making the request to ensure there’s no information that might increase your chances of getting turned down for the credit limit increase. If you find any information on your credit reports you believe is inaccurate or incomplete, you can dispute that information with the company that reported it or file a dispute with the credit bureau providing the credit report.
The second way you may get a credit limit increase is if a credit card company increases your limit without a request from you. This typically occurs after you’ve demonstrated responsible credit habits such as making on-time payments and paying more than the minimum payment required.
Whether a credit limit increase stems from your request or the
creditor's decision, “what’s most important is evaluating your own
personal situation and understanding whether you can continue to
handle credit responsibly," Bistritz-Balkan said.