Credit card companies impose restrictions on their cardholders. Perhaps the most important restriction is the credit card’s borrowing limit. This figure indicates the most you can owe the card company at once.
Limits usually start fairly low after card approval. Companies want to be sure you’ll pay them back before they lend you more money. As they see that you’re responsible, they’ll often increase the limit.
There are both pros and cons to receiving a higher credit card limit. If yours increases, there are some things you need to know.
How to Increase Your Credit Card Limit
Credit limits often increase automatically. However, there are situations where you’d want to expedite a limit increase. To do so, you have a few options.
Your first order of business should be to contact the credit card company. Sometimes, you can do this online—other times, you’ll need to call. Ask the company if a limit increase is possible.
They will likely ask you why you need an increase. They may also want to know if your income has increased accordingly. Expect to answer some questions regarding both factors.
If you use good credit card practices, you will likely be approved. Banks often give increases to those who pay their bills on time.
If the card company can’t help, you still have options. If you have good credit, consider applying for a higher limit card. Only do this if you absolutely need the money right away.
If you can wait, it’s best to request an increase through your existing card. It’s also okay to wait for an automatic increase to occur.
You can usually request an increase every 4-6 months. Approval depends on your financial standing.
Cons to Increasing Your Credit
There are a few reasons to be cautious when increasing your credit limit. It’s important that you know the risks before you act.
It’s a bad idea to increase your limit for a financial emergency. You aren’t fixing the problem this way. You’re only digging yourself further into debt.
Do not request a credit limit increase because of low income. If you lose your job or get demoted, there are other options. Only apply for more credit if you can afford it.
You must be aware that a credit increase can affect your credit score. These increases require a hard inquiry, which can ding your credit score.
Pros to Increasing Your Credit
Remember: credit utilization is a key part of your credit score. Credit utilization is the percentage of your credit limit you use. Ideally, your credit utilization should be less than 30%.
For example, if your credit limit is $1,000, you should owe $300 at most. If you regularly carry $500 on your card, you’re over 30%. A credit increase would decrease your credit utilization without changing your habits.
It’s also helpful to have access to more when you can afford it. Making larger purchases is easier with a high limit. As long as you can still afford payments, an increase is ideal.
Should You Ever Ask to Have Your Credit Limit Lowered?
It’s not a good idea to have your credit limit lowered. This usually negatively affects your credit score. It’s better to simply budget as if you have a lower limit.
Lowering your credit limit does more harm than good. Develop an alternative plan when possible.