What You Need to Know Before Asking for a Higher Credit Limit

By March 2, 2019Credit Laws
Asking for a higher credit card limit

Sooner or later, most consumers who use credit cards regularly toy with the idea of requesting a credit limit increase. You might ask for a higher limit in order to finance a large-scale purchase or because you’ve outgrown the original limit. Either way, it’s up to you to present a compelling case to the credit card issuer. You will likely want to highlight your past payment history and your reasons for asking for an increase. The rep for the credit card company may also want to know if your circumstances have recently changed, such as a boost in your paycheck, which could serve as a mark in your favor. Since a credit limit increase could affect your credit limit and financial condition, make sure you have carefully weighed the benefits and the risks as they apply to your specific situation. Here’s what you need to know before you ask your card issuer for a higher credit limit.

An Approval May Be Easier Than You Think

A credit card company is poised to make more money from a consumer with a higher credit limit — so it’s generally in their best interest to approve a request like this. If you already pay on time every month, you should have no problem meeting their guidelines for an increase. A word of caution: the credit card company might extend a larger increase than you actually need or want — so be prepared with a number in mind that’s still well within your spending limits.

Your Credit Utilization Ratio Will Be Affected

With a higher credit limit, your credit utilization ratio — also known as the amount of credit you’re using compared to the overall amount of available credit — will likely decrease. That, in turn, can lift your credit score. Lenders look favorably on consumers who are keeping their ratio at 30 percent or lower, and a credit limit increase will certainly help in that regard. The more room between your balance and the overall credit limit, the better — that way, you’re demonstrating to potential lenders that you practice responsible spending habits. However, it can be tempting to use the higher limit as an excuse to charge more purchases, but that will eventually increase the credit limit utilization and eat away at any progress you’ve made on your credit score.

Some Increases Happen Automatically

Some credit cards will offer automatic increases to customers as a reward for consistent on-time payments. It’s worth asking if this is a perk your card offers. If it is, find out how periodically your account may be reviewed for a potential increase. That can save you the trouble of having to request a higher limit.

Your Financial Standing Matters

Even though it may be fairly easy to snag that credit limit increase, a credit card issuer will still undertake a thorough review of your credit history. They’ll likely assess your recent payment history, as well as how much you’ve paid in proportion to your overall balance. If you’ve missed any payments or paid only the minimum amount due, that’ll send up a red flag to the credit issuer. You want to be able to prove that you’re spending within your means — and not just requesting a credit limit increase to cover up other financial woes.

Your Credit Report May Be Reviewed

The credit card issuer will probably pull your credit report if you’re asking for an increase. That query tends to drop your credit score by a few points. Although it will not result in any dramatic difference to your score, you should still hold off on applying for loans in the near future. When they review your credit report, the card issuer will be able to tell if you have applied for other loans or credit limit extensions recently, which could signal you’re in financial distress. That’s why it’s a good idea to limit your request to one card only — and make sure it is the one you tend to use the most often.

Before you ask for a credit limit increase, be sure you’ve done your homework and evaluated whether you’re a good candidate. Now is an excellent time to check in with your credit report and clean up any old debts or errors that could be hurting your score. At Ovation Credit, we offer a free consultation so we can help you track down any errors and tune-up your credit report before you ask for that credit limit increase.

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