How Increasing Your Credit Limit Affects Your Credit Score

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Receiving a credit limit increase can trigger a bit of a dopamine boost. It can also give you a little more peace and breathing room in case of future emergencies and could even improve your credit score if managed correctly. But researching the path towards a credit limit increase can get difficult, as each creditor has different policies.

Key takeaways

Successfully securing a credit limit increase could potentially improve your credit score by lowering your credit utilization ratio.
Whether or not your credit score is dinged by your request depends on if the creditor runs a hard or soft inquiry.
The best time to apply for a credit limit increase is before you need it.

How requesting a credit limit increase affects your score

Requesting a credit limit increase can have both positive and negative ramifications on your credit score, which you can track using a free tool like LendingTree Spring. The positives can be big — especially if you’re approved — while the negative impacts are typically minimal. In some cases, there may be no impact at all, even if you face a denial.

A hard credit inquiry can lower your score

When you ask your credit card company for a credit line increase, they may run a credit inquiry with the credit bureaus. Depending on the company’s policies, this may be either a soft inquiry or hard inquiry. A soft inquiry has no impact on your credit score whether you’re approved or not.

A hard inquiry does have an impact on your credit score. Depending on your overall credit profile, the drop in score is usually minimal. If you’re not approved and there is a hard inquiry, all you’ll be left with is the negative mark. But if you’re approved for the credit line increase, that small dip may be offset by the increase you see after improving your credit utilization ratio.

A lower credit utilization ratio can increase your score

If you are approved for a credit limit increase, you may see your credit score noticeably increase, too. That’s because your credit utilization ratio makes up as much as 30% of your credit score, and having a higher credit limit can decrease your credit utilization ratio in a positive way.

Let’s say you’re carrying $500 in debt on a card with a $1,000 credit limit. Your credit utilization ratio would be 50%. If you successfully request a credit limit increase and you are now allowed to borrow up to $2,000, the $500 balance would only represent a 25% credit utilization ratio.

Many financial professionals recommend a credit utilization ratio of 30% or less across all lending products in your name, though FICO takes things further and recommends a goal of 10% or less.

How a credit limit increase you didn’t request affects your score

Some creditors will automatically assess your eligibility for a credit line increase after a set amount of months of on-time payments and responsible spending. Typically these increases are based on soft inquiries which don’t affect your credit score. If they are granted, you could see a bump in your credit score thanks to a lower credit utilization ratio.

Be mindful, though, as these automated assessments can go the other way, too. For example, Huntington Bank has a line of credit product called ‘Standby Cash’ for checking account customers. An automated system regularly audits the balance in your checking account, and if the balance gets lower as you spend money and pay bills throughout the month, it may actually result in a decrease in your Standby Cash credit limit.

And just like an increase can help your credit score by lowering your credit utilization ratio, a decrease in your available credit is highly likely to raise your credit utilization ratio and therefore hurt your credit score.

How to get a credit limit increase

Getting a credit limit increase is a fairly simple process, though there can be some preparation involved.

Make sure your credit history is in tip-top shape. Checking your overall history is important, but get familiar with your history with the specific lender, too, as it will likely be weighed most heavily.
Don’t wait until you need the money to apply. One of the best times to apply for a credit limit increase is when you don’t need it. For example, you’re more likely to get approved for an increase if you’ve recently received a raise, and less likely to get one if you’ve recently lost your job.
Make a request within your creditor’s policies. Some creditors only issue credit limit increases automatically, which means you can’t make an active request. Knowing the calendar of when these automatic assessments pop up can help you prepare your credit profile appropriately, though. Other creditors will happily take a request at any time, in which case you can proactively contact them.

Pros and cons of requesting a credit limit increase

Securing a credit limit increase is usually a positive thing, but it’s always smart to educate yourself on potential cons before making any financial decision.

Pros

Could increase your available credit, which could raise your credit score.
If your creditor uses a soft inquiry, it will have no impact on your credit score whether you’re approved or not.
Allows you to make larger purchases.

Cons

Poorly timed requests that line up with loss of income could result in a credit line decrease.
If your creditor uses a hard inquiry, it could ding your credit score.
If you’re not responsible with it, the ability to borrow more could tempt you to spend more than you can actually afford.

When to ask for a credit limit increase

Timing is everything when it comes to asking for a credit limit increase. Here are some ideal times to apply:

Your income increases. A good time to ask for a credit limit increase is when you receive additional income that makes it easier to pay off debt.
Your housing costs have decreased. Similarly, big monthly financial responsibilities like mortgage payments or rent can impact your ability to repay debt. Creditors often take decreases in these monthly payments under consideration.
Negative line items have recently fallen off your credit report. Negative line items don’t stay on your credit report forever — they typically fall off after about seven years. When they do, you can fuel your positive credit history further by requesting a credit limit increase to lower your credit utilization ratio.

How to improve your credit score

It’s a little bit of a paradox: Securing a credit limit increase could improve your credit score, but in order to get a credit limit increase you typically need good credit. You can improve your credit score and your odds of securing an increase by:

Paying your bills on time. The number one factor impacting your credit score is a history of on-time payments.
Keep your credit utilization low. You don’t have to wait for a credit limit increase to reap the advantages of a low credit utilization ratio. Paying down your accounts is one of the quickest ways to lower your utilization ratio.
Keep older credit accounts open. The length of your credit history plays into your credit score. By keeping older accounts open, you’re potentially positively impacting your score as long as they’re not tempting you to spend more than you can afford, resulting in interest charges.
Check your credit report for errors. Removing inaccurate line items from your credit report can be a labor-intensive chore. But if there are inaccurate negative line items on your report, getting them removed could boost your score. You can get a free copy of your credit report from all three credit bureaus weekly at AnnualCreditReport.com.

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