Improve Your Credit Score by Raising Your Credit Limit

a hand holding a stamp that indicates credit accepted, with a blurred background showing more stamps and documents

There are a few times when you may need a higher spending limit on your credit card: an unexpected expense, such as a car repair, trip to a hospital emergency room, or a broken washer and dryer set that you want to replace immediately, for example.

But increasing your credit limit can help in another way – if you don’t spend the extra money that’s available.

Increasing your credit limit can indirectly raise your credit score by lowering your credit utilization,1 which is the ratio of your credit card balances to credit limits.  Credit utilization on revolving accounts makes up 30 percent of a credit score, according to FICO.2

The more credit you use, the higher your credit utilization rate will be.

For example, if you have a $300 balance on your credit card and a $1,000 credit limit, then your credit utilization rate for that card is 30 percent.  Increasing the credit limit to $2,000 and keeping the same $300 balance will lower the utilization rate to 15 percent.

A credit utilization rate of 30 percent or lower is fine, but if you want to improve your credit score to get the best loans, keep in mind that lenders look for a credit utilization rate of 10-20 percent.

How to Get a Credit Limit Increase

Asking for a credit limit increase is easy.  You can usually make the request with a phone call to your credit card provider.

Some things, however, may get in the way of approval.  If you don’t pay your credit card bill on time or often run up against your credit limit, you may not be granted an increase.

Creditors are looking at the risk of providing you more credit.  That means, if your balance is close to your current limit, a credit limit increase can be seen as a struggle to handle your current debt load and a way to get further in debt.

Before asking for a credit limit increase, check your credit report for accuracy and that you’ve been making payments on time for a while.

Not sure how to access or interpret your credit reports?  If you’re an MSA member, you can easily access and view your TransUnion credit report and credit score right from your member dashboard on your MSA website.  You can also talk to a Money Coach who is a Certified Credit Report Reviewer, if you have any questions about the content of your report.

You should also be prepared to explain why you want to raise your credit limit.  If you’re not comfortable doing that, then you may want to shop for another card.

If your credit card company denies your request, remind them of your good payment history with them and that you will shop elsewhere for another credit card offer.  It’s cheaper for the credit card issuer to keep you as an existing customer than to find a new customer.

If you get the raise, be sure to use it wisely, if at all.  It will only increase your credit score if you don’t use much of the extra money available.  If you do need the extra money for an emergency purchase, then try to pay off the balance during the grace period.

Other Reasons to Call Your Credit Card Company

While you’ve got your credit card company on the phone, you might as well ask them a few other questions.

Ask for a lower interest rate, which will save you money in the long run.  If you’ve shown that you’re a good customer, they may approve it.

Before you call, research other credit cards so you can tell your credit card company where you’ve found a better interest rate.  Ask them to match it or beat it, or else you’re going to switch to the other company’s credit card.

If you’ve been charged an annual fee recently or paid late fees, ask to have the fees waived.  Again, it will help if you’re a good customer with on-time payments, but it can’t hurt to ask.

If they won’t drop or eliminate your fees, ask for something else such as better perks when you reach a certain spending level.

An important goal with a credit card is to use it wisely so that it helps you improve your credit score.  Keep that in mind as you shop.

For more tips and tricks for maintaining good credit and using your credit cards wisely, talk to your Money Coach.  Every MSA Money Coach is a Certified Credit Counselor who can help you review your spending and make a plan for better credit utilization; you can walk through your credit report together, so you know what to look for, and your Money Coach can help you create a plan for debt management.  Call 888-724-2326 today to get started.

 

1 “Credit Utilization Ratio.”  Investopedia, n.d.,  http://www.investopedia.com/terms/c/credit-utilization-rate.asp.  Accessed 14 June 2017.

2 “What’s in my FICO Scores.”  myFICO, n.d., http://www.myfico.com/credit-education/whats-in-your-credit-score/.  Accessed 14 June 2017.