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What can a higher credit limit do for you?
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Credit cards can be powerful tools to improve your financial profile. And when it comes to credit cards 101, credit limit is surely at the top of the list of the basics to understand. “Credit limit” refers to the maximum amount you can spend on any given credit card. It’s determined by the credit card’s issuer (and you may be given increases periodically without asking), but you can also request credit limit increases. You may or may not be approved, depending on your credit score, income, and card usage.
A higher credit limit can be beneficial
Having a higher credit limit can help you in a few ways. If your line of credit goes from $2,000 to $4,000, you’ll be able to charge more on that card. But you could also see a bump in your credit score thanks to having a lower credit utilization ratio. This refers to the difference between how much revolving credit (your credit limit) you have at your disposal versus how much you’re actually using at any given time. The general rule of thumb is that you should keep this number under 30%.
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For example, if you have a credit card with a $4,000 limit, you should aim to keep your balance on it at any given time to less than $1,200 (30% of your credit limit). Ideally, you’re paying your balance off in full every month and not carrying it forward from month to month — otherwise, you’ll be paying expensive interest on the balance.
Here are a few scenarios when you might want to ask your card issuer to up your limit. Note that if you ask for an increase and are denied, you may have to wait three to six months before you can try again.
1. You’ve improved your credit score
While having a higher credit limit can improve your credit score, like we discussed above, if you already have a higher credit score than when you first got the card, you might want to ask for an increase. Maybe your credit score was languishing in the “fair” range, and you decided to focus on boosting your score. So you picked up a side hustle to make extra money to pay down some existing debt, and also focused on making all your payments on time. Now you’re sitting on a credit score in the “good” range. Your credit card issuer might be willing to bump up your limit in this scenario — which could also increase your score even more.
2. You’ve increased your income
Did you get a promotion or even change careers recently? If you’re making more money now than when you got your credit card, it could be a good time to ask for a credit limit increase. You’ll have to provide your annual income when you request the increase anyway. Your income matters to a credit card issuer because thanks to the 2009 CARD Act, it has to consider your ability to make required payments on the card. If your income can’t support the credit limit you’re requesting, you’ll likely be denied.
3. You want more buying power for a specific reason
Let’s say you’re getting ready to buy some new furniture and you want to use your favorite cash back credit card to earn some money back on the deal, but the credit limit isn’t high enough for you to make the purchase without maxing out the card. This could be a good time to ask for a credit limit increase. Similarly, if you’re planning a trip overseas, you might want a higher credit limit on your travel credit card, since it doesn’t charge foreign transaction fees and you intend to put your expenses on it while you’re out of the country.
If you’re looking for a fairly simple way to boost your credit score and boost your credit card buying power, consider asking for a credit limit increase on your card.
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