Should I Request an Increase to My Credit Limit?
While requesting an increase to your limit can give you access to additional funds and decrease your credit utilization ratio, there are times when a credit card limit increase may not serve you well in the long run. A good place to start in your decision-making process is to examine why you want the credit limit increase in the first place.
Why you might want to increase your credit limit
One of the more common reasons why you might increase your credit limit is to reduce your credit utilization ratio — the amount of credit you’re using relative to your total credit limit.
If the total amount of credit you’re using is approaching your total credit limit, your credit score could suffer. This is because your credit utilization ratio can be an important part of your credit score.
A higher credit utilization ratio may have a negative impact on your score, as it suggests to the issuer you may be close to maxing out your credit cards. For example, your income may have grown and, simultaneously, your monthly expenses have risen, therefore the current credit limits on your cards may accommodate this increased cost of living as well as before. In this case, increasing your card limit may prevent your credit utilization ratio from creeping up.
Additional reasons to increase your limit may include:
- Access to credit for emergency situations
- Opportunity to earn additional rewards on credit card purchases
- Simplify making larger purchases such as vacations, furniture or home renovation
Reasons not to increase your credit card limit
A higher credit card limit could potentially lead you into taking on too much debt, which could impact your future requests for credit negatively. For instance, banks or credit card issuers will decline applications for new loans if your income can’t support your existing debt plus the loan or mortgage payment you’re applying for. Also, requesting an increase to your credit line could result in a hard inquiry on your credit report, which could impact your credit score.
If you’re considering an increase to your credit limit, make sure you know how to use credit cards responsibly, and maintain the good personal spending habits that can lead to a good credit score and a positive financial future.
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