How Does a Credit Limit Increase Affect Your Credit Score?
Increasing the limit on a credit card gives you access to more credit, meaning you can spend more money on your card. Credit card issuers sometimes automatically raise your credit limit if you’ve established good payment and usage patterns. Opening a new credit account also increases your total credit limit.
So, does increasing a credit line affect your credit score? In the short term, if you take a hard credit check while increasing your credit limit, your score will fall a few points. But, over the long term, higher credit limits can improve your credit utilization ratio, which improves your credit score.
How does increasing your credit limit affect your credit score?
While increasing your credit limit may not have a significant effect on your credit score, it could change your score a little bit. Credit limit increases don’t automatically drop your score, but there are some situations where it can negatively impact it.
If you open a new credit account to increase your credit limit, you’ll have to take a hard inquiry on your credit report, causing your score to slightly tumble. Likewise, if you request an increase of your credit limit on an existing account, your creditor may run a hard inquiry — but they may not. You probably won’t have to take a hard inquiry if you get an automatic credit limit increase after using your card for a while.
But even with the temporary drop from a hard credit check, a higher credit limit in the long run may actually help your score by improving your credit utilization ratio. Your credit score factors in how much debt you have as a percentage of your total credit limit — a ratio of under 30% is considered best.
Suppose you have a $5,000 monthly debt and a $15,000 total credit limit. With a credit utilization ratio of 33%, your score would be negatively affected by the amount of debt. If you get a credit limit increase to $25,000 and your debt level stays the same, your credit utilization ratio would fall to 20%. Your credit score rewards you for keeping a lower percentage of debt, and raising your credit limit will help.
Credit score components
The three credit bureaus report FICO Scores to measure your creditworthiness. Creditors and lenders use that information to make credit decisions, and higher scores can open access to bigger loans and better interest rates.
Increasing your credit limit affects two of the five factors that make up your credit score:
- Amounts owed: Credit scores reflect your amount of debt relative to your credit limit, and having a lower credit utilization ratio helps your score, especially if it drops below 30%. Raising your credit limit helps drag down that credit utilization ratio.
- New credit: Opening a new credit account involves a hard credit check, which hurts your score slightly. Applying for a credit limit increase may also include a hard check. If you open too many credit accounts in a short time, your score will fall. However, there are situations in which credit limit increases on existing accounts don’t include a hard credit check, like when card issuers automatically increase your limit.
These three additional factors aren’t necessarily affected by credit limit increases:
- Credit mix: Your credit score may improve slightly if you have a few different kinds of credit accounts instead of just one single account. A higher credit limit for an existing account won’t change your credit mix, though increasing your credit limit by opening a new type of account would.
- Payment history: Making regular, timely debt payments will help your score over time; missing payments can cause your score to drop significantly. If you make required payments with a higher credit limit, it won’t affect your payment history.
- Length of credit history: A longer credit history will help improve your score, and there’s no quick way to establish that track record. Increasing your credit limit doesn’t change when you first opened an account.
Should I get a credit limit increase?
Whether you should or shouldn’t request a credit limit increase will depend on your unique financial circumstances. Taking out a new personal loan, credit card or mortgage is a big financial decision that affects your credit limit, but it should be considered on its merits — not solely whether it increases your credit limit or not.
Generally, people want credit line increases because they want or need to spend more money. As long as you still can make higher credit card payments, for example, increasing your credit limit shouldn’t be a problem. Conversely, if a higher credit limit causes you to start missing payments and fall into debt because you’re buying things you can’t afford, you probably shouldn’t want to increase your credit limit.
Your credit score might be a small consideration if you debate whether you should open a new credit card or ask for a credit limit increase on a card you already have. If it’s the latter, you could ask your card company if they do a hard credit check on credit limit raises.
Ultimately, you should consider a credit limit increase only if you know that you won’t be tempted to spend more money than you can pay back.
Automatic credit limit increase
You may not need to apply for an increase to get one. Credit card companies sometimes automatically give you one if you make a series of on-time payments. Increasing your credit limit gives you more flexibility and access to credit, and companies are willing to do that if you’ve demonstrated that you can pay your bills.
It is possible to decline automatic credit limit increases from certain card issuers, but there’s little downside to getting one — after all, you don’t have to spend up to the credit limit if you don’t want to.