There are many strategic tactics you can take advantage of to increase your credit score. Some, like paying your bills on time each month, take a while to actually register as positive momentum in that magical number. Others, however, are relatively quick fixes that can easily give your credit score the boost you’re looking for. Increasing your credit card limit is one of those simple tips. It takes just a few minutes on the phone and could very well raise your score within the next 30 days.
This is an especially smart move if you’re trying to raise your credit score to qualify for a loan or get better interest rates. But like any strategy, you need to put a little thought behind how you do it. Here’s the lowdown on when it’s a good idea to increase your credit card limit and how to prepare yourself for the conversation with your creditor for the best chance of success.
Why You Should Increase Your Credit Card Limit
Before you call your credit card company asking them to increase your credit, it’s important for you to understand how this move affects your credit score. Credit utilization is the amount of credit you have access to compared to the amount you actually use. So, if you have three credit cards with a total spending maximum of $30,000 and you have $10,000 charged across those cards, your credit utilization ratio is about 33%. Most financial experts agree that it’s ideal to keep that ratio under 30%. In this scenario, you’d want to try and pay off just over $1,000 to keep your ratio in the target range. Obviously, the lower your credit utilization ratio is, the better.
How does this affect your credit score? On the FICO scoring model, which is the most widely used among lenders, the “amounts owed” category accounts for 30% of your credit score. That’s a huge percentage, and is in fact only second to your payment history. When you lower the amount of money you owe to creditors and lenders, you automatically increase your credit score. By extending your line of credit, you can decrease your credit score utilization ratio without even making any extra payments on your current debt. Let’s go back to the example above. If you get approved for an additional $5,000 on one of your credit cards, that takes your available credit up to $35,000. If you still have that $10,000 in debt, your credit utilization ratio drops from 33% down to 28.5%. You can see how effective it can be to increase your credit card limit whether or not you currently have debt.
Only Extend Limits on Existing Credit Cards
When using this tactic, it’s very important to realize that it only works when you’re extending your credit on cards that are already open. Opening a new credit card account can actually hurt your credit score in a couple of different ways. First, the hard inquiry to get approved for the new card temporarily dings your credit score. Plus, your average length of credit decreases every time you open up a new card. With the “length of credit” component comprising 15% of your credit score, this can also lead to a short-term dip in your credit. It’s not a big deal if you don’t plan on applying for a loan or mortgage anytime soon.
However, if you are planning on buying a home or car sometime soon, even a minor dip could impact your ability to get the lowest interest rates. Another way extending your credit helps you when it comes time to apply for a loan is by demonstrating that you’re financially responsible. Yes, you have access to a large amount of credit, but keeping low balances shows that you don’t spend outside your means or abuse your credit cards. Lenders look upon this favorably both when approving loans and offering favorable terms and conditions. If your goal is to increase your credit score for any reason, extending your credit limit rather than opening a new account is the best way to go.
Which Card to Choose and How to Ask
Now that you know why you need to select an existing credit card to extend your limit, it’s time to figure out how to find the best one in your wallet (assuming you have more than one). Start by picking a card that you’ve had for a long time and that has a low or zero balance. You’ll want to demonstrate to the credit card company that you’re a responsible borrower, so make sure you’ve been consistently making at least the minimum payment on your account each and every month. Once you’ve selected your card, it’s time to call customer service.
If you’re nervous, jot down some talking points before you pick up the phone. Mention to the customer service representative that you’ve been a loyal customer for several years (be specific on how long) and note that you always make your payments on time and carry a low balance. They might ask you why you want a credit limit increase and it’s ok, to be honest. You’re not about to charge a boat, you’re simply working on increasing your credit score and would like to lower your credit utilization ratio.
You might get a few more questions about your current financial situation, so be prepared to talk about your employer, how long you’ve worked there, and how much money you earn each month. If you don’t know these facts off the top of your head, add them to your list of talking points before you make the call. Be polite and patient with the customer service representative and chances are, you’ll get that extension you’re looking for. It’s quite simple and when it comes down to it, most people are just afraid to ask.
Remember to Use the New Limit Responsibly
Increasing your credit limit is best for people who already use their credit cards responsibly. Having access to more credit does not equal permission to spend it, even if you can afford the monthly payments. Remember that you’ll be paying a ton of extra interest on everything you buy using your credit card if you don’t pay off your balance in full each month. Plus, your credit utilization ratio will skyrocket, quickly decreasing your credit score. That defeats the whole purpose of getting the credit extension in the first place. It only takes one quick mistake to cause your credit score to plummet, but it takes a lot of time and effort to restore it again.
That being said, as long as you’re financially responsible and regularly pay off your balance each month, you might consider using your credit cards for everyday purchases such as groceries and gas. You’ll benefit from increased rewards points that might actually save you money in the future, whether through cash cards or discounts on vacations. And many experts agree that actually using your revolving credit is better for your credit score than not using your credit cards at all. It’s a complicated algorithm that might not be exactly the same for everyone, but you can always count on the bottom line: don’t charge more than you can afford, and pay your balance in full each month.
What to Do If You’re Denied
In an ideal situation, you’ve prepared your talking points and the customer service representative at your credit card company is happy to extend your line of credit. However, it’s not the end of the world if your request is denied. First of all, you asked — which is a lot more than most people do. But before you hang up, be sure to ask one more question: why was your request denied? Perhaps your current balance was too high or your monthly income wasn’t quite enough to support the increase in credit.
The good news is, once you find out, you can take steps to remedy the situation. Take a few months to pay off some extra debt, then try again. Or request a raise from your boss — after all, now you have practice asking for what you want! If the credit card company cites items on your credit report as an issue, be sure to get a copy and look things over for yourself.
You should also access your credit reports to make sure everything on there is up-to-date and accurate. If you have several items that you think should be removed, consider hiring a credit repair firm like Lexington Law or Sky Blue Credit. They know the legal in’s and out’s of dealing with creditors to make sure that all outdated and incorrect information is fully discharged — all of which contributes to strengthening your credit score. Once you’ve got everything correct, try contacting your credit card company again to see if you qualify this time. As the old adage goes, the squeaky wheel gets the oil.