Your credit card issuer may raise your card’s credit limit for a number of reasons. It might be that you want to be able to charge more on your card, or you want the credit increase to improve your credit score and report. There are certain times when it makes sense to increase your credit card’s limit, and certain times when it doesn’t.
Here are the things you need to know.
THE BENEFITS OF A CREDIT LIMIT INCREASE
Increasing your credit card limit has two major benefits.
The first one is obvious. You can purchase more with your credit card when your limit is raised. You may want to be prepared in case you need to replace an appliance in your home. Perhaps you want to be able to use your card for all your monthly expenses (and pay off the balance before interest begins to accrue).
The second benefit of a higher credit limit is that it can boost your credit score. Credit utilization ratio is one of the major factors that determine your credit score, i.e., how much credit you are currently utilizing. Your credit score benefits from a low credit utilization ratio, which is naturally easier to maintain when your credit limit is higher.
WHEN TO ASK FOR A CREDIT LIMIT INCREASE
The following are the best times to request an increase in your credit limit:
- You have a strong credit score. In order to build your credit, you must demonstrate your ability to manage your credit and make your payments on time. When you have good credit, credit card issuers are more likely to approve your request for a credit increase.
- You are a good customer. You are a strong candidate for increasing your credit limit when you have had your card for some time and always use it responsibly. It’s a good sign if you have a long history of making payments on time, every time.
- Your financial circumstances have improved. You may be able to use a higher salary or raise as the basis for successfully arguing for an increase in your credit limit.
WHEN YOU SHOULDN’T ASK FOR A CREDIT LIMIT INCREASE
Consider these scenarios before requesting a credit limit increase:
- Your credit needs work. In the case of poor to fair credit (you can see a breakdown of credit scores here), you may want to wait until you’ve achieved your credit goals. If you don’t have good credit, your card issuer is less likely to approve your request.
- You don’t have good standing as a customer. It is possible your card issuer doesn’t have enough customer history to determine whether your limit can be raised if you’ve only had your card for a short time. Your card issuer may not approve your request if you have recently missed a payment or maxed out your card.
- You are struggling financially. If you’ve been struggling to pay your bills or have recently lost your income, raising your credit limit could put you in financial trouble. In addition, if you plan to charge the entire amount of your credit limit increase, you should think twice before you incur more debt.
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