Are you thinking of increasing your line of credit?
You can go about it several different ways, and each has its pros and cons.
But while a higher credit limit can give you more purchasing power and lower your credit utilization ratio, it can also affect your credit score.
Keep reading to learn everything you need to know about increasing your line of credit.
What to know before increasing your line of credit
You should always be aware of your credit utilization rate — especially if you’re thinking about increasing your credit.
If your credit is already maxed out, increasing your limit won’t help. It could even get you into more financial trouble. Getting a higher credit limit is a bad idea if it’s only increasing your credit card debt; only increase your line of credit if you think you can use it responsibly and pay back your balance in full every month.
You may also only have access to a certain amount of total credit, meaning a credit limit increase on one account could impact your ability to increase your limit on other accounts or open new accounts.
Pros and cons of increasing your line of credit
- Lowers your credit utilization: The less of your available credit you use, the better your utilization rate.
- Boosts your purchasing power: An increased credit limit means more money for large purchases.
- Helps in an emergency: If your financial situation deteriorates, you can rely on additional credit to help pull you through hard times.
- Potential hard inquiry into your credit report: Lenders inquire into your credit history when you request a higher limit. This can slightly impact your credit score.
- Increased limit can lead to increased spending and debt: It doesn't matter what your credit card limit is if you can’t make your minimum payment.
How to increase a line of credit
There are several ways to go about increasing your line of credit. Below are the four most common.
- Make a request.
The simplest way to increase your line of credit is by requesting it from your credit card issuer or financial institution. Requests can be made through your online account or by calling the number on the back of your card.
- Wait for an automatic increase.
Credit issuers regularly check your credit history to see if you’re eligible for an increase. If you consistently practice responsible credit habits, you might receive a credit increase automatically.
You’ll have better chances of receiving an automatic increase if you use your credit card often and pay your entire balance on time every month.
- Apply for a new credit card.
If you only have one or two credit card accounts open, applying for a new card can be a simple way of increasing your overall credit limit.
- Transfer your credit limit.
Some credit card companies allow cardholders to transfer part of their spending limit from one card to another from the same company. While it won’t increase your overall limit, it can give you more flexibility.
Pitfalls to avoid when increasing your line of credit
While increasing your credit limit usually has an overall positive effect on your finances, there are a few mistakes to avoid.
- Don’t repeatedly apply within a short period: Too many requests for increased credit can result in an abundance of inquiries into your credit history and a dent in your credit score.
- Don’t overspend: An increased line of credit can often lead to increased spending, which can strain your finances. If you’re prone to overspending, you might want to think twice about increasing your credit limit.
- Don’t miss payments: You pay hefty interest charges and damage your credit score when you miss credit payments. If you’ve been missing payments or haven’t been paying the total amount, increasing your line of credit won’t help.
FAQs about increasing your line of credit
How does applying for an increase to a line of credit affect your credit score?
The impact depends on the approach you take to increasing your credit limit.
Automatic credit limit increases don’t trigger hard inquiries into your credit report and therefore don’t hurt your credit score.
However, card issuers often perform a hard inquiry when you request an increase, which takes a few points off your credit score. Don’t let that deter you, though. While the inquiry will stay on your credit report for two years, your credit score should bounce back within a few months of responsible credit usage.
When should I ask for a credit limit increase?
Here are a few scenarios in which requesting a line of credit increase might be a good idea:
- When your income increases. A higher annual income improves your chances of being accepted for an increase.
- When you have a strong credit background. Credit issuers see you as less of a risk if you’ve maintained healthy credit habits over the past 6 to 12 months.
- When enough time has passed since your last request. Multiple hard inquiries over a short period can be interpreted as an indicator of high risk. You should wait at least six months between credit limit increase requests.
Should I increase my credit limit if offered?
When you receive an offer for an automatic increase to your credit limit, it’s usually a good idea to accept it. That’s because automatic increases don’t negatively impact your credit score. They often help your score improve if you can keep your spending under control because as your limit increases, your credit utilization ratio drops.
Is it wrong to request a credit line increase?
Requesting an increase to your line of credit isn’t necessarily a bad thing and can even help improve your credit score in the long term. But remember that you should only request an increase if you’re confident you can maintain healthy spending habits.
Is it better to increase a line of credit or open a new account?
Opening a new account can be an easy way to increase your overall credit limit. But in some cases, increasing the limit on your existing card might be a better option because it allows you to extend the length of your credit history on that account — a longer credit history results in a better overall credit score.
The bottom line
Before increasing your line of credit, establish a set of healthy financial habits to stay within your budget.
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