To increase your credit limit on your credit card, the first step is simply to ask your card issuer to raise it. Alternatively, you can apply for and open a new credit card.
There are a few ways to ask your credit card issuer for more credit and we'll cover those options below. First, let's take a look at why your credit limit is what it is, to begin with. Your credit limit is typically set when you're first approved for a credit card. It is the amount of money that your credit card issuer is willing to let you borrow, and that credit limit is usually set based on your credit scores, your overall credit history, debt with other lenders and income.
But, as we have all experienced, there are times that life just happens. The car breaks down, taxes are due and there's just more month than money.
There are two main reasons you may want to get a credit increase:
- You're looking for ways to get access to some additional funds, perhaps to cover an unexpected expense, and one route is getting your credit limit increased on an existing credit card.
- You're looking to raise your credit score by improving your overall credit utilization ratio—the overall amount of debt used compared to your overall credit available.
Will I Get Approved for a Higher Limit On My Credit Card?
If you have had your credit card for a while and have done a good job keeping up with your payments, your credit card issuer may just automatically raise your credit limit after a period of about 6 months of good payment history, especially if your limit started really low.
While small limit increases may be a relatively easy thing to get, your card company will probably not give you a large increase without due diligence. So, before you start smiling and dialing, here are four things to consider before asking for a credit limit increase:
- The overall condition of your credit report. Get your credit report and if information on your accounts has been reported incorrectly, dispute it. You can use this tool to dispute information on your Experian credit report, but you'll want to make sure you've corrected mistakes on all three of your credit reports. Late payments are a sign of risk for lenders, so get all your accounts up to date.
- Your income. Your card issuer will also usually want to look at your debt to income ratio to make sure you have the ability to manage more debt. A steady income source is needed, so you will need to verify your employment and income.
- Debt and credit card spending. Card issuers are interested in how you have spent on your current account, particularly your recent history. They will also look at your overall debt with other lenders.
- Payment history. This is one specific area on your credit report that is often a big consideration for lenders. They want to know you can manage more debt.
Ways to Get a Credit Limit Increase
There are several different ways to request an increase, and card issuers have different policies about how they go about evaluating the request. Some card companies will pull your credit report even for a small increase request, and some do not. Remember, the reason this is is important is that if your credit report is pulled, and inquiry will be added to your credit report, which has a small negative impact on your credit scores.
- Online. Many times, your credit card issuer's website has an option to ask for a credit limit increase. It's typically a simple process, but you may need to provide some information, such as your latest income and debt information.
- Phone. Simply call the phone number on the back of your card and ask a customer service representative whether you're eligible for a higher credit limit.
- Wait. If your request for an increase is not urgent, and you have been managing your account without any late payments, you could wait for an automatic increase. There's no guarantee on this, though. Most major card issuers will not automatically raise your credit limit until you have at least 6 to 12 months of paying your payments on time and not exceeding your credit limit.
CreditCards.com conducted a poll in March 2017 and found that 89% of cardholders who requested a credit limit increase got one.
How Does an Increased Credit Limit Help Your Credit Score?
A credit line increase reduces your credit utilization ratio, which usually helps improve your credit scores. So, for example, if your credit limit was $2,000, and you have a balance of $1,000, you are utilizing half, or 50%, of that credit line. This equates to a 50% credit utilization ratio, which can ding your credit scores since it is higher than the recommended 30% utilization rate. But if they raise your credit limit to $5,000, and you're still only using $1,000, then your utilization ratio drops to 20%.
Is a Credit Limit Increase Better Than Opening a New Card?
The answer to this question depends on your situation. If your credit report is in good shape and you have been making your payments on time on all your accounts, you could be approved for a new credit card, perhaps with even higher limits than your current card. If your credit is exceptional, you could even qualify for a rewards or cash back card and some perks for your credit card spending.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer, or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.