You don't actually have to need a credit limit increase to make getting one a good idea. Increasing your credit limit can increase your total available credit, which will in turn lower your credit utilization ratio. But how do you go about getting your credit limit increased? If you do increase it, are there any negative consequences for your credit? For those who have been thinking about getting a credit limit increase, here's how to know if the time is right for you.
Should you apply for an increased credit limit?
Mike Sullivan, director of education with Take Charge America, notes that increasing your credit isn't the worst thing you can do. It will lower your overall utilization. Still, he recommends that you only increase your credit limit when you actually need to for a specific reason. He cites taking a new job with more travel as a good reason to increase your credit.
Still, you don't want to ask for more credit if you don't think your credit will improve. "At the time you ask for an increase, your credit should be so good that there's no question that you'll get it," Sullivan said. This is because when you ask for a credit limit increase, there's going to be a hard inquiry into your credit. That's not the worst thing that can happen to your credit. But it will have a negative impact. You don't want that negative impact to be for naught. In FICO score terms, Sullivan thinks around 720 is where you're almost certain to get a credit limit increase.
Is that a big deal? Not necessarily, says John Heath, directing attorney of LexingtonLaw. While applying for more credit will negatively impact your overall credit score, Heath says that "you're relatively safe unless you do it on 20 different cards." So don't abuse the privilege, but if you think your credit is in good shape, and you need more credit, go ahead and ask. In this case, it can hurt to ask, but probably won't hurt too much. And in any event, credit utilization has a far greater impact on your score than hard inquiries.
Heath and Sullivan are of the same mind when it comes to the "should" part of the question. "I'm of a conservative mindset," says Heath. "If I'm going to apply for a credit limit increase, it's going to be for a specific reason."
What is your credit card company going to be looking at?
There's more to just your FICO score when it comes to getting your credit limit increased. "They're going to be looking at your payment history as well as your credit score," says Heath. "You might have trouble getting your limit increased if you've had trouble making payments in the past."
What about how long you've had the card? Sullivan says that doesn't play much into whether or not you're going to get a credit limit increase. "I've had cards for three months and the company offered me an increase in my limit," he says. On the other hand, he notes that if you've recently applied for a $10,000 card and received instead a $5,000 limit, asking for a credit limit increase probably isn't going to happen. "They're going to look at your overall credit and how you behave with other cards," he says. "I think the key is to use all of your cards responsibly."
Your creditor will also ask about your income. "In theory they're going to take your word for it," says Sullivan, "but there are hints to the truth." He notes that credit card companies have metrics that allow them to get a ballpark idea of how much you're making, so it's best to be honest if you're asking for an increased credit limit on the basis of increased income. "They're not going to ask for documentation, because they probably don't need it," Sullivan says.
Finally, creditors will look into public records, which Heath notes can be the ultimate red flag when it comes to getting any kind of credit -- new or old. "Liens, judgments, back taxes. These are all big red flags, because they're in front of the line for collections," he says.
Still, when it comes right down to it, it's going to be a judgment call on the part of the lender. "Lenders are just like people," says Heath. "Some are more conservative than others."