Increasing the limit on your credit card can help you improve your credit score. This guide will help you raise your credit score in the right way, helping you to build your credit.
There are a lot of ins and outs to credit. If you are looking for a credit line increase, you may be wondering how it will affect your credit score.
Knowing how to use credit properly and knowing how to properly request a credit limit increase will greatly help your personal finances and can even help you raise your credit score.
Requesting an increase on your credit limit can be a good idea, especially if you are making more money than you were previously and if you already have a good credit history. Higher credit limits can not only increase your buying power but can also improve your credit score by lowering your overall credit utilization rate.
How does a credit card limit affect my credit score?
In basic terms, all your credit limit does is state the amount of available credit you have. Although asking for an increase will not directly help your score, increasing your credit limit can impact your credit utilization ratio.
By increasing your limit, you will be lowering this important ratio, which can lead to an increased score on your credit reports. Remember, you want to keep your credit utilization rate low. In fact, this ratio can have a huge impact on your score; in the FICO scoring model, your utilization makes up 30% of your score.
Does requesting an increase require a hard credit inquiry
Every credit card issuer uses different criteria to determine if you are eligible for a credit increase. Requesting one may temporarily decrease your score, as some companies will conduct a hard pull on your credit in order to verify your creditworthiness.
However, some credit card companies will automatically increase your limit. In this case, only a soft credit pull is conducted and this will not impact your credit score negatively.
When is the best time to ask your credit card company for a credit limit increase?
There are a few things that can signify you are ready for a credit increase. They are as follows:
- You recently got a raise – A higher salary or wage will show that you are able to cover the cost of having a higher credit score. It can show your ability to take on a higher credit limit.
- You have a strong credit history – If you have a great track record with your credit currently, it will increase your chances of getting approved for a credit increase. In addition, having the card for at least six months can also improve your chances of approval.
- You already have good credit – A good credit score will signify to your issuers that you are financially responsible. If you have already shown that you can make on-time monthly payments, this will show that you can afford the increase.
- Keep your credit card balances low – In addition to having a strong repayment history, keeping your credit card balances low is important. If you are only making the minimum payment each month or your balance is steadily increasing, it can show that you are in a state of financial distress. Keeping your balances low and paying off your card in full each month will increase your chances of getting that credit increase.
When should I wait?
- You just asked for an increase on another card or applied for a new line of credit recently – If you have recently requested an increase on another card and immediately requested it on another, it can be a sign that you are struggling financially to a credit card company. In addition, these can result in a hard credit pull on your account which can temporarily lower your credit score.
- You are traveling – This one may seem like an odd addition to the list, but travel and vacations can lower financial inhibitations. When people travel, they are more likely to spend more money than usual. It is best to wait to ask for a credit increase when you are home and in your normal spending habits. Increasing your credit limit can make it easier to overspend.
- Your credit history is less-than-perfect – If you already have a bad credit score, the likelihood that you will be approved for a credit increase is slim. First work on building up your score in other ways before asking for a credit increase.
Wrap-up
Requesting a credit increase can be a great way to give your credit score a boost. If used properly, they can lower your credit utilization ratio and increase your buying power.
However, keep in mind that an increase can be tricky for people that already overspend and can lead to more overspending. Use these tips to decide if and when a credit increase will help your personal finances.
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