When Should You Ask for an Increased Credit Limit?
Your credit limit is the maximum amount you can borrow on any one credit card. It's usually determined by some combination of your credit score and your income. The more money you have coming in and the better you've been with money in the past, the more credit a creditor is willing to let you use.
The credit limit you start with on a card doesn't have to be the limit you're stuck with, though. You may want to increase your credit limit multiple times over the life of the account. There may even be circumstances where your creditor increases your credit limit without you even having to ask.
So when should you ask for an increased credit limit? And are there any drawbacks to having most credit available at your disposal?
Why ask for a credit limit increase?
Why even bother with increasing your credit limit in the first place? There are plenty of reasons (and honestly, "because I can" is a perfectly valid reason on it's own), but the biggest reasons why you might want a higher credit limit include:
More spending flexibility
A $5,000 credit limit means you can charge a maximum of $5,000 to the account before the card becomes maxed out and can't be used again until you've paid down the balance. A $10,000 credit limit means you have twice the amount of potential credit to make charges before you'll hit your limit.
While anything you charge needs to be repaid eventually, the extra available credit gives you added flexibility when considering how to spend your money. Between your checking, savings, and investment accounts, the additional credit gives you more options, especially if you're in-between paychecks or facing a large, unexpected expenses.
More security in the event of an emergency
The more available credit you have, the easier it is to weather unplanned expenses. Ideally, you'd have sufficient savings built up to help cover those unexpected expenses, but that's not always possible. With costs rising and wages lagging behind, it can be especially hard to build an emergency fund.
That's where having a substantial credit limit can help. Rather than having to rely on expensive, short-term loans, you can use credit to manage those costs. Again, those are charges you'll eventually have to repay, and credit card debt can be it's own kind of trap, but as an alternative to payday loans and other emergency loan options, it's much less expensive.
Positive credit impact
Requesting a credit limit increase may involve a hard inquiry on your credit report, which can have a minor, short-term impact on your credit score. That brief negative impact can be quickly offset by the potential improvement to your credit utilization ratio.
Put simply, the more of your available credit that you use, the worse it is for your credit score. So if your available credit increases, but your usage stays the same, that ratio gets smaller, which has a positive impact on your credit.
What do creditors look for when considering a credit limit increase?
You may be interested in increasing your credit limit, but are you a good candidate? Every creditor has their own criteria, but there are two areas that tend to rise above the rest:
Missing payments is bad for your credit score, but it's also a bad sign in general to creditors. The number one thing anyone who loans you money is generally interested in is whether or not you're going to make your payments on time. Missing even a single payment can make you seem less creditworthy to creditors.
If you're thinking about asking for a credit limit increase, make sure that you're up to date on all of your accounts. It's not a bad idea to request a copy of your credit report and verify that everything looks good before contacting your creditor.
And if you do have missed payments, make arrangements to make those up. Once you're caught up, you may want to wait a while (6-12 months) for your credit to improve before making your request.
If you've proven your creditworthiness by making consistent, timely payments, the next most important factor is steady, sufficient income. Even if you've got a great credit score, your creditor may not be willing to extend you more credit if they don't feel like your income is have enough to manage the potential payments.
The more you charge, after all, the higher your monthly payments. And if your income doesn't increase to match these potential payments that may raise the likelihood of you not being able to make those payments.
Again, while most creditors want you to use more credit, their top priority is making sure you pay them back. So extending you more credit than you can afford isn't in their best interests.
Are there risks to increasing your credit limit?
Having access to more credit is usually a good thing, but there can be some serious drawbacks if you're not careful.
Potential to overspend and create debt
Once you've got the higher credit limit there's no one around to tell you how to use it. If you're mindful about your money, it can be a safety net. If you're prone to overspending, it can be the beginning of a major problem.
A higher credit limit means you have the freedom to charge more and potentially outpace your own means. The end result: lots and lots of debt. Perhaps more debt than you can handle comfortably on your own.
If you do want to increase your credit limit, make sure that your spending is based on what you can actually afford (what your income allows) versus what your credit card can handle.
Cost of carrying more debt
If having a higher credit limit leads to you carrying more debt, you're also going to be on the hook for larger interest charges and bigger monthly payments. That means your big debt is going to be even harder to pay down then it used to be.
How do you request a credit limit increase?
If you feel comfortable handling a larger credit limit and your payment history and income history look good, the process of requesting a credit limit increase is usually pretty simple.
Many of the larger creditors give you the ability to request a credit limit increase online through their website or mobile app. Individual experiences will differ, but you'll often find an easy to locate option for request a credit limit increase. You'll then be asked a few questions, usually about your income status and what you want the new credit limit to be. You may be asked to provide authorization for the creditor to pull a copy of your credit report.
The response may take a few days, but increasingly the decisions are made automatically and nearly instantaneously. Once you're approved, your new credit limit to typically available immediately. Expect to receive some updated documents from the creditor outlining any changes to your account.
Request by phone or in-person
Some creditors may have a more manual approach, in which case you'll need to call customer service or visit your local branch. Depending on the creditor, the information requested may be more in-depth, but the gist is usually the same: they want to make sure that your credit history and income are sufficient for the increase.
Again, a response may take a few days and may come by mail, phone, or email.
What if I'm rejected?
If your request for an increased credit limit is rejected, the creditor will typically provide information on why the request was rejected. This should give you something to work on. If it's a missed payment or negative credit history, consider working with a credit counselor to try to get your debts under control and your payments on track.
After you've addressed the reason for your rejection, you can always make a new request. For the sake of your credit, however, avoid making too many requests in a short period of time, as that can potentially lower your credit score.