Getting declined for a credit limit increase might impact your credit scores. Whether it does depends on if the card issuer reviews your credit report with a hard or soft inquiry before making their decision. If its a soft inquiry, your credit scores wont be affected at all. However, similar to when you apply for a new credit account, a hard inquiry might hurt your scores.
Having a good credit score is important if you ever need to take out a loan, get a new credit card, or even rent an apartment. Your credit score is calculated based on several factors, including your payment history, amounts owed, length of credit history, new credit accounts, and credit mix. One lesser known factor that can affect your credit score is getting denied for a credit limit increase.
How Credit Limit Increase Requests Work
Many credit card companies allow customers to request a higher credit limit This can be done by calling customer service or logging in online When you request an increase, the card issuer will review your account to determine if they want to approve it. As part of this process, they may check your credit report and score.
There are two types of credit checks – a soft inquiry and a hard inquiry:
-
A soft inquiry is when a lender checks your credit report without impacting your score. This kind of check is often done for pre-qualification offers.
-
A hard inquiry is when a lender checks your full credit report and this check shows up on your report. Hard inquiries can lower your credit score slightly.
If the card issuer does a hard inquiry when reviewing your request for a credit limit increase, this could negatively impact your credit score. The effect is usually small (only a few points) and temporary.
Why Credit Limit Increase Requests Get Denied
There are a few key reasons why credit card companies deny requests for higher limits:
-
Low credit score – Issuers want to see you have a solid credit score before increasing your limit If your score is fair or poor, an increase is unlikely
-
High utilization – If you are using a large percentage of your current limit each month, issuers may deny an increase out of concern you’ll accumulate more debt.
-
Short credit history – Having limited accounts or only being a customer for a short time can result in a denial. Issuers prefer extending more credit to long-term customers.
-
Missed payments – Any late or missed payments with the card issuer will negatively impact your chances for an increase. Timely payments help build trust.
-
Recent credit inquiries – Applying for a lot of new credit in a short timeframe raises red flags. Issuers may want to see you cool off from applying before approving more credit.
Does a Denial Lower Your Credit Score?
If the card issuer does a hard pull on your credit when reviewing your request, the short-term effect on your score will be the same whether you are approved or denied. However, there are a few reasons why a denial could contribute to a lower score over time:
-
If you have your limit increased on another card to compensate your overall utilization could rise if you shift debt around without paying it down. Higher utilization leads to lower scores.
-
Being denied the increase could discourage you from aggressively paying down balances if you were hoping for a higher limit. Maintaining high balances keeps your utilization ratio elevated.
-
Receiving the denial could prompt you to apply for other cards or loans to access more credit. Too many hard inquiries and new accounts will drag down your score as well.
So while one denial in isolation won’t crush your credit, it could start a chain reaction of increased debt or declined applications that subtracts points from your score.
Steps to Take After a Denial
If you request a higher limit and get rejected, here are some tips on what to do next:
-
Review your reports – Pull your credit reports and check them for any errors that hurt your approval odds. Dispute any mistakes.
-
Pay down balances – Try to lower your credit utilization below 30% if possible. This can offset the negative effects of the denial.
-
Hold off on applications – Don’t apply for new credit right away. Wait at least 3-6 months for the effects of the hard inquiry to fade.
-
Ask for reconsideration – Some issuers allow you to call for reconsideration if you address the reasons for the initial denial. Provide updated income info.
-
Try other lenders – Consider requesting limit increases with issuers that may be more eager for your business rather than relying just on your primary card.
-
Improve your profile – In the months after the denial, work on improving your credit by paying bills on time, lowering balances, and not applying for new credit. Then try requesting the increase again.
The Impact Depends on Your Profile
The important thing is not to overreact and make the situation worse. Be patient, pay down debt if possible, limit new applications, and continue practicing good credit habits. Over time, you can rebuild your profile and have better odds for approval in the future.
How Does Your Credit Utilization Impact Your Credit Score?
Your credit utilization rate is a comparison of your balances and credit limits on revolving accounts such as credit cards. Your utilization rate may increase if you close a credit card or the issuer lowers your credit limit and your balance stays the same. Conversely, increasing your credit limit could lower your utilization rate.
Your utilization rate is an important scoring factor, and using a small portion of your available credit is best for your credit scoresâwhich is why a credit limit increase might help you improve your scores. Lowering your utilization rate is also one of the few things you can do that may quickly improve your credit scores.
For example, if you have four credit cards with a combined credit limit of $20,000 and a combined balance of $5,000, your utilization rate is 25%. However, if your total credit limit is increased to $30,000, your utilization rate drops to about 17%. Your card issuers may report the changes around the end of your cards next billing cycles, and your credit scores could then reflect the lower utilization rate.
All that said, increasing your credit limits wont necessarily help your credit scores if you wind up increasing your card balances as well. If a higher limit might lead you to spend more, requesting a credit limit increase might not be a good idea.
How Asking for a Credit Limit Increase Works
The process for requesting a credit limit increase can vary depending on the credit card issuer, but its not something thats typically difficult to do. Some companies let you make a request online, while others ask you to call a representative. You can often ask to raise your credit limit by a specific amount.
Credit card issuers arent always clear about whether the request will result in a hard or soft inquiry, but some share this information online. For example, Barclays says a request for an increase could lead to a credit inquiry that “may have an impact on your credit score” (in other words, a hard inquiry). Capital Ones website says the issuer only performs a soft inquiry that wont impact your credit score.
If youre unsure and cant find the information online, call your card issuer and ask whether it will use a soft or hard inquiry. You can also ask if its likely that your request will be approved. However, they likely wont be able to guarantee a result before you make the request.
While a single hard inquiry can stay on your credit report for two years, the impact on your scores will be temporary and should not be a significant factor when you responsibly seek credit. Multiple inquiries in a short time period, on the other hand, can be a cause for concern when it comes to credit cards.
#shorts Denied Credit Limit Increase Before 91/3? What to Do #nfcu #navyfederal #credit #credittips
FAQ
What happens if I get denied a credit increase?
Does requesting a credit limit increase hurt my credit scores if it’s denied? If a credit limit increase involves a hard inquiry, that could cause your scores to dip. But the denial itself shouldn’t be reflected in your credit reports.
Does it hurt your credit score if you get denied?
Do you get dinged for asking for a credit increase?
Credit limit increases aren’t risk-free. You could see a ding in your score if your card issuer pulls your credit report to verify if they should approve a credit limit increase or not.
Can you have a 700 credit score and still get denied?
Common reasons for credit card denial despite good credit
They want to ensure that, at the very least, you can afford to make your minimum monthly payment. It is therefore possible for you to have a 700+ credit score but be denied a new credit card because your current credit is already high relative to your income.