You have likely noticed an increase in the amount of available credit on your credit card at one time in your life. You should feel glad even though you might be a bit puzzled. This means your card company considers you as a loyal customer.
But, what if you bought a new credit card and the issuer began with a low credit limit? What if that limit stays the same even after the first year?. Should you ask for a raise? absolutely, yes.
Raise Your Credit Score
When you raise your price of total available credit, it decreases your credit utilization rate. This is also known as your credit utilization ratio. This is one of the factors FICO takes into account when determining your credit score, and having a high credit utilization rate can have a negative impact. For example, let’s assume that you started with a credit limit of $1,000 and regularly have $800 charged onto the card; that means your credit utilization is at 80%. Now let’s assume you asked for a credit limit increase and now have a maximum of $5,000. If you are still charging $800 each month, your new credit utilization is now 16%.
Receiving this increase in credit limit lowered your credit utilization, which ends up helping your overall credit score over the long term. Most credit experts recommend keeping this percentage at 30% or below. One important thing to consider is that when you request the increase in your credit limit, the issuer will be doing a hard credit inquiry, which will give you a short-term two to five-point credit score decrease. However, if the issuer automatically gives you an increase, then there will be no hard inquiry.
Preventing Credit Score Decline
Anyone that is looking to increase his or her available credit probably wants the ability to spend more with the card. This could be for several different reasons. You may want to put more of your everyday spending on the card to earn rewards. Maybe you have a big upcoming purchase that you want to use the card for.
If you need extra credit, you have two options. You can work to get an increased credit limit on the current card, or you can take out a new card. While taking out a new card might be attractive because of the signup bonus it offers, it might not be the best choice for you. Every time you get a new card, your average length of credit decreases. Because this makes up 15% of your credit score, you could see a short-term decrease in your FICO score.
The next time you are looking to add more available credit, you are better off forgoing a new card and asking for a credit limit increase on an existing card.
The Right Way To Ask for a Credit Limit Increase
Now that you have made the decision to ask for a credit limit increase, you need to figure out how exactly you are going to ask for it – and hopefully reduce your chances of being turned down.
The timing of your request is going to be a big factor. Consider for how long the account has been open. If you recently received the credit card, then you may want to establish some history with the account before asking for an increase. It’s also probably not the best time to ask for an increase if you have been bad at paying your bill on time or are currently behind on your payments. Make sure you establish a good track record for paying your bill by its due date before making your request.
Conclusion
Increasing your credit limit is useful in many ways. The biggest one is that it can help reduce your credit utilization rate, which will help increase your credit score. Figure out the best time for putting in your request, and then go for it.
