Make Sure You Are Approved to Increase Your Credit Limit Before Applying
There is little catch 22 when it comes to applying for a credit card limit increase: A higher limit can boost your credit score, but asking for an increase can also temporarily damage your credit score. What if the lender rejects your request? You just lost your credit rating for no reason – which could be literally the opposite of what you were trying to do in the first place. Here’s how to make sure you are approved for a limit increase before you apply.
Wait, how does increasing my credit limit improve my credit score?
Credit bureaus base 30% of your credit rating on your credit utilization rate , which is a measure of how much available credit you don’t use (the less you use, the better). By requesting a higher credit limit, you can easily increase your score, which in turn will make it easier to qualify for loans.
To request an increase in your credit limit, contact your lender online or by phone (using the number on the back of your card). The downside is that this process often involves a thorough investigation of your credit, which can reduce your credit by about 5 points, usually for several months.
How do I know if I am eligible for an increase in my credit limit?
Unfortunately, lenders are not entirely sure if you will be the right fit for this. However, there are ways to improve your chances of a limit increase:
- Your income or credit rating has recently increased: If you make more money or have better credit than when you first applied for a card, this is often all you need to get a raise.
- Know your financial situation (and be specific): Your lender may want to know information such as your total annual income, employment status, and monthly mortgage or rent payment. In some cases, they will check this before approving the promotion, so make sure the information you provide is correct.
- Don’t be greedy: A common rule of thumb is to ask for a 10-25 percent increase in your credit limit.
- You pay your monthly balance on time: You need at least a few months of consecutive payments to appear to be a reliable borrower.
- Apply when loan utilization is already low – you don’t want to appear desperate for more debt than you already have, so try to keep your debt utilization below 30% when you apply.
- Time your request strategically: A serious investigation will only hurt your credit score for a few months, but it can still hurt your ability to qualify for loans with favorable interest rates. Therefore, consider postponing an increase in your credit limit if you are planning to finance a large purchase, such as a home or a car. Also, do not apply for a large number of loans and credit cards at the same time, as this can be a red flag for lenders.
You can also ask if your request has a hard request – some requests only require a soft study of your credit, which means they will not affect your credit rating in any way.