Increasing your credit limit can provide you with new opportunities to make larger purchases and increase your credit score. It can also be useful if you find yourself continually creeping closer to your maximum credit limit on your bill each month. If you go over your credit limit, the credit card company may deny the transaction or even charge you a service. Here's everything you need to know about increasing your credit limit in 2019.
Why Are You Increasing Your Credit Limit?
Before you even attempt to increase your credit limit, it's important to make sure that you're doing it for the right reasons. Wanting to put more charges on your credit card because you don't have enough money in the bank isn't a good reason to increase your credit. Credit card debt can lead to financial ruin, and for some, an increased credit limit can be a temptation to increase spending and living beyond their means. So what are some good reasons to seek an increase?
You may want a higher limit because you've outgrown your current line of credit. Perhaps you are hoping to make large purchases, though you should only do this if you can pay then off immediately or quickly. This is especially true if the credit card you decide to use comes with benefits, like cash back.
You may also want to increase your credit limit to improve your credit score. Credit utilization is one factor that credit bureaus use to determine your credit score. Assuming you keep your spending around 30% of your new credit line, having a higher credit limit can help boost your score. While this can be a great decision for your credit score in the long-term when used wisely, requesting a credit line increase can also temporarily damage your score.
Understand Your Credit Score
Before you ask a credit card company to increase your limit, it's important that you understand your credit score. Ask yourself these questions:
- Are you currently in good standing?
- Do you have a solid credit history?
- Do you almost always pay off your balance in full and on time?
You want to be confident that your request for an increase will be granted when you ask. When you ask for an increase, the credit card company will perform a hard inquiry to determine your score. This can negatively impact your credit for up to a year, though the extent of the impact is highly dependent on a number of factors, including the formula used to determine your score, how long your credit history is, or more. Hard credit inquiries will remain on your record for up to two years.
If you're not sure what your credit score is, take advantage of resources that will perform a soft inquiry on your credit. Some of these services include Credit Karma and tools built into some credit card company's suite of services. Soft inquiries do not harm your credit score.
Apply for a New Credit Card
One way to get a higher credit limit is by applying for a new credit card. This can be especially useful if you have outgrown your current credit cards and want to move on to credit cards with a higher limit or better perks. Typically, they will require your annual income, current employment information, and the amount you pay for housing to help determine your credit limit (along with your credit score, of course). Before applying for a new card, be sure to do your research. Find cards that have larger credit limits, but still seem obtainable according to your current income and credit history.
Request a Credit Increase on a Current Card
If you don't want to apply for a new credit card, consider requesting a limit increase on a card you currently own. Choose this card wisely, as you want to avoid asking for increases on multiple cards within a short time frame and damaging your score. Once you have determined which card you want to use, you can begin the process of requesting the increased limit.
Have Your Argument Prepared
Once you've determined which card you want to use, be sure to have an argument for your increase prepared. It's important to avoid sounding desperate or focusing on the items that you will purchase with the increased limit. Instead, focus on what you've done to deserve the increase, such as:
- Your impeccable payment record
- Great credit utilization rate
- Length of time with the company
- A recent increase in income
While your verbal argument won't outweigh your credit score and history, it can help you if the company is on the fence about your limit increase.
It is equally important to have a list of questions prepared for the company about your credit card, your credit score, and your increased limit. This will help you better understand the process and what to expect.
While some companies allow you to apply for credit limit increases online, you have more opportunity to advocate for yourself and ask important questions when you call to request the increase.
If for some reason your request is denied, ask them why. This will help you determine what you need to do to get a credit limit increase in the future.
Don't Ask for Too Much
While getting a large credit limit increase can be beneficial, it's important to keep your request reasonable. Asking for an outlandish limit that is far beyond your income threshold will raise an eyebrow and could give them a reason to reject you.
It's also important not to fish for information about your ideal credit limit from the representative. Credit card companies bar their representatives from discussing this with customers. Unfortunately, estimating a credit card company's ideal limit for any given individual is also difficult. Some experts say that credit card company's aim for increases anywhere between 10% to 25%, though this can vary depending on the company's standards and your credit history.
Offer a Balance Transfer
Offering to transfer a balance to your credit card if the credit limit increases is appealing to credit card companies. While this certainly won't outweigh a limited credit history, poor payment history, or low credit score, it can help entice them to negotiate an increase with you. Aside from increasing your chances for approval, many cards offer a 0% APR period on balance transfers that can ultimately save you money in the long-term. Before offering to transfer a balance, make sure you understand the card's balance transfer fees and make sure that you can pay off the balance before the zero APR period lifts. This will help ensure that you're getting a good deal from the credit card company.
Be Patient and Wait for Your Increase
Don't want to go through the effort of applying for a new credit card or requesting an increase from one of your current credit card companies? If you have a great credit score and are in good standing with a credit card company, you may get your credit increase without having to ask. Some credit card companies will issue automatic increases if you have been with a company for a while and have spent responsibly. Some companies evaluate their customers for an automatic increase as frequently as every six months.
It's never too late - or too early - to plan and invest for the retirement you deserve. Get more information and a free trial subscription to TheStreet's Retirement Daily to learn more about saving for and living in retirement. Got questions about money, retirement and/or investments? Email Robert.Powell@TheStreet.com.