There are many strategic tactics you can take advantage of to build 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 the boost you’re looking for.
Increasing your credit 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 improve your credit 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 ask for a credit line increase and how to prepare yourself for the conversation with your creditor for the best chance of success.
Benefits of Increasing Your Credit Limit
Before you call your credit card company asking them for a credit limit increase, it’s important for you to understand how this move affects your credit.
Credit utilization is the amount of credit you have access to compared to the amount you actually use.
Most financial experts agree that it’s ideal to keep that ratio under 30%. Obviously, the lower, the better.
How does this affect your credit? On the FICO scoring model, which is the most widely used among lenders, the “amounts owed” category accounts for 30% of your score. That’s a big percentage and is only second to your payment history.
When you lower the amount of money you owe to creditors and lenders, you automatically improve your credit. By increasing your credit limit, you can decrease your ratio without even making any extra payments on your current 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 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 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 of 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 improve your credit 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 issuer 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 customer service 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 simply working on building your credit and would like to lower your credit utilization ratio.
You might get a few more questions about your current financial situation. 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 them 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.
When is the best time to ask for a higher credit limit?
Even when you prepare for the call ahead of time, there are circumstances in which your odds of success can be greatly improved. If you’re thinking about asking for a higher limit, you’ll want to consider it even more if one of these situations has come up, or if you’re expecting one to happen soon.
#1: A Recent Credit Boost
Creditors assume that if your score is good, then you’re better able to stay on top of your payments. Of course, we know that the secret to financial security is never charging more than you can afford. Be sure not to overspend if you do get that credit line increase.
#2: Strong Customer History
Credit card issuers certainly look at your holistic credit history, but they’re especially concerned with how well you’ve handled your payments with their specific card. First, make sure you’ve been a customer with them for at least six months.
Any account younger than that hasn’t had enough time to establish a trusted pattern of on-time payments. Next, look at how you’ve been spending on that card. If you’ve kept the balance low and made your payments consistently, you’re in a good place to make the request.
#3: Recent Pay Raise
Did you recently get a pay raise or promotion at work? If so, you can leverage that extra income to qualify for a larger credit limit.
Depending on your creditor, you may need to wait until you’ve received an updated paystub or other documentation showing the raise. Again, always be sure to use your cards responsibly and don’t overspend — think about where you can boost your savings as well.
When to Avoid Asking for a Credit Limit Increase
Creditors also view a few scenarios as potential red flags, making it unwise to ask for a credit limit increase in these situations. One is if you’ve recently lost income or took on a lower paying job for some reason. A smaller income could denote a higher debt to income ratio or lead a creditor to believe you’re less financially secure. Either way, you likely won’t get your credit line increase approved.
The same holds true if your credit score has dropped. This could be because of late payments, multiple recent requests for new lines of credit, or even identity theft. The best course of action is to make sure that you’re aware of what’s causing the decrease. Do your best to rectify the situation before applying for a credit extension.
Remember to Use the New Limit Responsibly
Getting a credit line increase 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 hurting your credit. 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.
Many experts agree that actually using your revolving credit is better for your credit 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 is happy to raise your credit limit. However, it’s not the end of the world if your request is denied.
You may want to consider the credit card issuer’s reconsideration line. This generally only works when you’re applying for a new credit card, but it’s worth a shot. They can possibly get your requested approved or at least tell you why it was 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 issuer mentions 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. Here are some reviews of our top picks.
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 improving your credit.
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.