When it comes to credit limit increases, your credit scores could be affected in a few ways. But it depends on how the increase happens and how an expanded credit limit is used.
Hereâs some information to help you learn more about how increasing your credit limit could affect your credit scores.
Getting offered a credit limit increase can seem like an attractive proposition. After all who wouldn’t want more available credit? However blindly accepting a credit limit increase without considering the implications can be a risky move. In this article, we’ll weigh the pros and cons to help you decide if accepting a credit limit increase is the right choice for you.
How Credit Limit Increases Are Offered
There are two main ways your credit card company may offer you a higher limit
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Pre-approved credit limit increase The issuer may periodically review your account and decide to increase your limit without you requesting it. This is usually based on factors like your income, payment history and credit score. Accepting a pre-approved offer does not require a hard inquiry on your credit.
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Applying for an increase: You can request a credit limit increase directly by contacting your issuer. They will likely perform a hard inquiry to review your creditworthiness. Too many hard inquiries can temporarily lower your score.
Potential Benefits of Accepting an Increase
Here are some potential advantages that come with a higher credit limit:
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Increased purchasing power: A higher limit gives you more spending flexibility for large purchases or unexpected expenses. However, you still need to pay your balance off in full each month.
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Improve credit utilization: This measures how much of your total available credit you are using. Keeping your utilization low helps your credit score, so a higher limit can help here.
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Access emergency funds: While credit should not replace savings, it can serve as a backup if you are caught in a financial pinch. But use this option only as a last resort.
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Earn more rewards: Putting more expenses on a rewards credit card can help you accumulate points and miles faster. Just make sure to pay off the balance each month.
Drawbacks to Accepting a Credit Limit Increase
While it may sound enticing, there are some potential downsides to having more available credit:
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Overspending risk: With a higher limit, it may be tempting to overspend. This can quickly lead to mounting debt, interest charges, and damaged credit.
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Higher minimum payments: Your monthly minimum due is calculated as a percentage of your balance. A higher balance equals a larger minimum payment.
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Other credit impacts: High overall credit limits could lower the amount you qualify for with other loans or mortgages. Lenders may see you as overextended.
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Lowering your credit score: Maxing out cards closer to their limits can worsen your credit utilization and hurt your credit score.
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Hard credit inquiry: Unless it is pre-approved, applying for an increase triggers a hard inquiry which can lower your score in the short term.
Tips for Deciding If You Should Accept
So when should you accept a credit limit increase offer? Here are some best practices:
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Only accept if you have a specific purpose for needing more credit in the near future, such as an upcoming large purchase. Don’t accept just for the sake of having more available.
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Make sure you have a proven track record of paying your balance off in full each month. Accepting more credit when you carry a balance is risky.
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Consider if a limit increase with your current card is better than applying for a completely new card in terms of hard inquiries.
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Review your overall credit situation, including credit mix. Will more revolving credit actually help or hurt your credit profile?
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Avoid applying for multiple increases across multiple cards in a short timeframe to minimize hard inquiries.
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Have a conversation with a financial advisor if you are unsure whether accepting is the right choice. Get a professional opinion.
Maintaining Healthy Credit Habits
The most important thing is to continue practicing good credit habits, regardless of whether you accept a higher limit or not. Here are some healthy credit tips:
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Always pay your credit card bill on time and in full each month if possible. At a minimum, make sure to pay the minimum by the due date.
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Try to keep utilization below 30% on each card and across all cards.
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Create a realistic budget and stick to it so you are not overspending.
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Build savings for emergencies and avoid relying on credit cards when possible.
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Monitor your credit report regularly and address any errors or issues.
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Consider your overall credit mix – don’t rely solely on credit cards.
The Bottom Line
Credit limit increases require careful consideration. While they provide greater spending power and credit access, the risk is taking on debt you cannot repay. Avoid accepting an increase on impulse alone. Analyze your particular situation to determine if the benefits outweigh the potential drawbacks. If you do accept, be vigilant about maintaining healthy spending and payment habits.
Does requesting a credit limit increase hurt your credit scores?
Whether requesting a credit limit increase will affect your credit scores depends on whether your issuer uses a hard or soft credit inquiry to review your credit history as part of the request:
- If the review involves a soft inquiry, it wonât have an effect on your credit scores.
- If the review involves a hard inquiry, it could cause your credit scores to drop by a few points.
If your request is denied and it involved a hard inquiry, it may not be a good idea to ask again too soon. Thatâs because too many hard inquiries in a short period of time may have a larger negative impact on your scores. The Consumer Financial Protection Bureau (CFPB) recommends only applying for the credit you need.
Before requesting a credit limit increase, consider asking your issuer about its procedure.
Should you request a credit limit increase?
Thereâs no one-size-fits-all answer for who should request a credit limit increase. It depends on your circumstances and financial goals. Here are a few examples of situations when you might consider a credit limit increase:
- Youâre planning a big purchase. A higher credit limit may help you finance and pay off a large purchase over time. But keep in mind that if you carry a balance on your card, you may be charged interest. And carrying a balance may also impact your credit scores.
- Youâre preparing for emergencies. Having more available credit may give you some peace of mind knowing youâll be able to cover emergency costs. Itâs also a good idea to work on building an emergency fund so you can avoid using credit or tapping into other savings to cover unexpected expenses.
- Your income increased. A higher income may help assure lenders that you can afford a higher credit limit. But remember, the CFPB recommends only applying for the credit you need.
- You want better loan terms. If youâre using credit responsibly and your scores increase, it might enhance your creditworthiness when you request an increase.
If you want to know how increasing your credit limit might affect your overall credit, you could use the CreditWise Simulator. It lets you test how different scenariosâincluding credit limit increasesâmight affect your credit. The Simulator is available through CreditWise from Capital One, which also lets you access your credit report and scores anytime. CreditWise is free. Using it wonât hurt your scores. And itâs open to everyoneâeven if you donât have a Capital One credit card.
Should You Ever Decline a Credit Limit Increase?
FAQ
Should I accept the offer to increase my credit limit?
Accepting a credit limit increase is almost always a good idea because it improves your credit utilization ratio, which is a key factor in your credit score. Credit utilization measures how much of your available credit you’re using, and the lower the percentage, the better it is for your score.
Does accepting a higher credit limit affect credit score?
As long as you don’t increase your spending by too much and keep making payments on time—in addition to other responsible credit habits—your credit scores shouldn’t be negatively affected by a credit limit increase in the long run. That’s because a higher credit limit can help you lower your credit utilization ratio.
Is it worth getting a credit limit increase?
Overall, automatic credit card limit increases are a good thing if you can manage the increased spending limit, especially if the increase is for a card that …Dec 5, 2024
Should I always accept a pre-approved credit limit increase?
In some cases, a credit limit increase may trigger a hard inquiry on your credit report, which could temporarily lower your credit score by a few points. While pre-approved increases typically avoid this, you should confirm with your lender before accepting a pre-approved increase.