By Megan Doyle | American Express Credit Intel Freelance Contributor
5 Min Read | November 06, 2019 in Credit
Your credit limit, as the term suggests, is how much credit your card issuer is willing to extend to you before you need to pay off some of your balance. Your credit card limit depends on several factors, including your credit history, monthly income, and card issuer’s policies. But did you know that your credit limit isn’t set in stone?
That’s right. Sometimes your credit card company might surprise you with an unrequested increase. Other times you’ll have to request a higher limit. But be aware that your card company can also reduce your credit limit if it begins to deem your spending habits as risky.
If you’re considering requesting or accepting a credit card limit increase, here’s a how-to on what you can do.
There are a few ways to get a credit limit increase:
1. Use Your Card Responsibly and Just Wait
Sometimes your card issuer will offer to increase your credit limit after you’ve consistently demonstrated that you use the card responsibly. This includes making on-time payments and paying your balance—all while using the card frequently.1 In fact, showing you’re a responsible card user can lead to a credit card limit increase as often as once every six to 12 months.
2. Sometimes You Have to Ask
If you haven’t received an automatic increase, it doesn’t mean you’re not eligible. You might just have to ask! Most card issuers will let you request a credit card limit increase online or by phone.2 Your card company will probably assess personal information to determine your level of financial risk. Personal information usually includes your employment status, gross income, and mortgage or rental payments. They might also ask why you want a credit limit increase.
If you’re asked how much of an increase you’d like, be warned: asking for too much could get you denied. Some suggest requesting an increase of 10 to 25 percent of your current limit, but every card issuer and cardmember is different.3
3. Apply for a new card
If you have a history of good—or great—credit, there’s a chance you could be approved for a new credit card with a higher credit limit. And, even if your new card doesn’t have a higher limit, opening a new line of credit will have much the same effect by increasing your total available credit.
Whether you make a request, wait for an automatic increase, or apply for a new card, the chances of boosting your credit card limit could improve if:
If you’re financially stable, maintain a low balance, and pay your statement on time, increasing your credit limit can open up new financial opportunities.4 For one thing, a higher credit card limit can provide more financial flexibility—extra money available for emergency car repairs or a last-minute plane ticket home for the holidays. It can also help you make a larger-than-usual purchase.
A higher credit limit can also boost your credit score by lowering your credit utilization ratio—the percentage of your total credit limit you’re currently using.
For example, say your credit limit is $5,000 and your most recent statement balance is $2,500. This means you used 50 percent of your total limit. But if your credit limit increases to $10,000, you’re using only 25 percent of your credit limit. Why do those percentages matter? Experts say keeping your credit utilization rate at or below 30 percent is a good rule of thumb for helping you to have a good credit score.
If you struggle with overspending, increasing your credit limit can sometimes bring more trouble than it’s worth.5 With more money to spend comes a greater potential to tack on debt and possibly hurt your credit score. And if you end up missing payments or max out your card often, your card company might consider your behavior risky and decrease your limit.
Put simply, if you worry about whether you’ll be able to use your higher credit card limit responsibly, it may not be for you.
It’s also worth noting that some card issuers cap the total credit they extend to you. If that’s the case, you might not want to increase your credit limit if it will prevent you from increasing the limit on another account or from getting another card from that issuer.
You might also be wondering if requesting a credit-limit increase will affect your credit score. It depends. If your card issuer pulls a hard credit report to assess your financial risk, you might see a minimal decrease on your credit score—about 5 to 10 points. If you’re approved and your credit utilization ratio decreases, your score increase might outweigh the decrease.
And if you’re denied, don’t worry. It happens. Meantime, experts say keep using that credit card and keep your payment history clean.6 How often you can request a credit limit increase depends on the card issuer, but unless you’ve received an increase within the last six months, many will let you ask as often as you like. However, you probably won’t be approved until you’ve shown several months of consistent, healthy payments.