You might not have as much credit as you like and are wondering why. Every lender has its own criteria for determining how much credit to extend, but there are two common reasons why you might have a low credit limit:
- Your credit scores may have been low while applying for a specific credit card or loan.
- You may be relatively new to credit and haven’t built up a long credit history yet.
Why Does a Low Credit Limit Matter?
A low credit limit is designed to keep you from spending beyond your means, which is a good thing. But a low credit limit also has the potential to drag down your credit scores, depending on how much you spend on your credit cards each month.
If your credit limit is low, and you use a lot of it on a monthly basis—even if you pay off your balance each month—you could end up having a high credit utilization ratio, which is simply the amount of credit you use each month relative to the amount of credit available to you. For good credit scores, you want to keep your utilization ratio under 30%, and for the best scores, under 10%.
There are only two ways to reduce your credit utilization ratio: Decrease the amount you put on a credit card each month or increase the amount of credit available to you. But if your limit is low, it may be hard to decrease your spending amount. For example, with a credit limit of just $2,000, putting $500 on a credit card each month would result in a utilization ratio of 25%.
3 Ways to Increase Your Credit Limit
Whatever your credit limit, there are ways you can position yourself to get an increase. In fact, all the things you can do to improve your credit scores—like making payments on time, keeping balances low, and evaluating the risk factors on your credit reports—will help you in asking for more credit over time. So start by checking your credit reports for errors and look for ways you can improve your scores.
Once you know where your credit history stands, there are several ways to increase your overall credit limit.
1. Ask Your Current Credit Card Issuer for an Increase
Start by logging into your credit card account online. Some issuers allow you to request an increase directly through their websites—and are often able to provide you with instant approval. You can also call your issuer and speak with a customer service representative to request an increase.
If your income has increased, that’s something you should mention (or indicate in your online request). Card issuers often do take income into account when determining credit limits. Just make sure you’ve had the card for a year before asking for an increase—that is typically the amount of time most issuers want to track your credit history before offering an increase. Have your income information and reasons for your request ready.
If you’re denied, ask your issuer the reasons for their decision. That will help you to figure out how you can improve your situation to become more likely for an approval in the future.
2. Apply for a New Credit Card
You can also increase your overall credit available by applying for a new credit card. Of course, if you have a specific limit in mind, you’ll likely have to go through trial and error, because you won’t know how much credit an issuer will extend until you actually apply—and you typically can’t request a specific amount.
Be sure to apply only after you have a good history of making payments on time, which will make it more likely for you to be approved and receive a generous credit limit. And don’t apply for multiple cards with abandon: Your credit scores take a small hit every time there is a hard inquiry on your credit reports, which occurs whenever you apply for new credit.
3. Check if Any of Your Existing Credit Cards Have Issued an Automatic Increase
Some issuers will extend your credit limit automatically after you’ve had the card for a while and have been making payments on time. Before you apply for new credit or request limit increases, check the limits on all your cards to see if they have been changed by the lender.
The Downside of More Credit
Just remember, a credit limit increase can be a positive thing in terms of bettering your credit score—but it also has the potential to tempt you to spend more than you should. Don’t use a high credit limit as a license to buy things you can’t immediately pay off at the end of the month.
And if you’re about to apply for a mortgage or an auto loan, a credit limit increase could make you seem like a riskier consumer because the lender may assume that you plan on taking on more debt—if you have a new inquiry or account added to your credit report.
So make sure your credit scores are in good shape before you apply for new cards or request more credit, and don’t do it before you take out a big loan, like a mortgage.