This Credit Card Hack Technique Can Boost Your Credit Score and Purchasing Power

Increasing your credit limit can have two immediate benefits: it can increase your credit score by lowering your credit utilization, and it can also give you more purchasing power before you max out your card. Increasing your credit limit means that your card issuer has decided that you are worth entrusting with more credit opportunities.

It’s usually a good idea to have higher credit limits, unless you’re worried about overspending. Sometimes issuers will automatically grant a credit limit increase, but you can usually request one as well. Here’s how and why it usually makes sense to ask for higher credit limits, and how this strategy differs from opening a new credit card.

Key Findings

Increasing your credit card limit can lower your credit utilization ratio, which can improve your credit score.
This also gives you more purchasing power before you max out the card.
In some situations, increasing your credit limit may make more sense than purchasing a new credit card.
Before you request a credit limit increase, it’s worth checking your credit using a free or low-cost program. credit monitoring service.
If you receive an increase, commit to using your extended credit limit responsibly and not overspending.

Increase your credit score

Increasing your credit card limit can improve your credit score by lowering your overall credit utilization, as long as it doesn’t cause you to spend more. Here’s how.

Your credit utilization ratio is an important factor when calculating your credit rating (“amount owed” is 30% of the FICO score). Credit utilization refers to the amount of credit card debt you have compared to your total available credit—the more debt you have compared to your total credit limit, the higher your utilization and the worse it is for your credit. The lower your credit utilization, the better for your credit.

For example, let’s say you have two credit cards with a credit limit of $1,000 each and a balance of $500 on one card. The total available credit is $2,000 and the credit utilization ratio is 25% ($500 is 25% of $2,000).

What if you increased one of these credit limits to $1,500 and kept the same balance of $500? The total available credit will be $2,500 and the credit utilization ratio will decrease to 20% ($500 is 20% of $2,500).

All other things being equal, this will likely result in an improvement in your credit score. But this only works if you don’t increase your spending too much.. You may be able to spend more while keeping your load relatively low, but don’t abuse the higher limit by overspending.

If you already have a tendency to have very low credit utilization each month, increasing your credit limit won’t do you much good in that regard. Most credit experts recommend keeping your credit utilization ratio at or below 30%.

When you request a credit limit increase, the issuer may hard credit inquirywhich may result in a short-term, minor reduction in credit rating. However, if the issuer automatically grants you an increase, a hard request is not necessary.

More purchasing power

It’s very simple: a higher credit limit gives you more purchasing power. You can spend more on the card before it reaches its maximum.

Once again the same warning that you cannot overspending applies—Charge only what you can repay each month, and pay off your credit card in full each month to avoid interest charges..

Increasing your purchasing power is especially helpful if you have a low credit limit, such as $500, and it is not enough to meet your monthly spending needs. Being able to comfortably put all your expenses on one card every month if you want is convenient. Compared to spending on multiple cards each month, it also creates fewer opportunities for errors and missed payments.

If you already have a very high credit limit that is enough for your typical monthly expenses, the increase will not affect your purchasing power. But if you tend to use most of your available credit each month, an increase can still improve your credit score by lowering your utilization.

Increased credit limit compared to a new credit card

If you’re looking to increase your credit limit, chances are you’ll want to spend more with your card. Perhaps you want to put more of your everyday expenses on the card to earn more rewards. Maybe you have upcoming big purchase you want to put on the card and plan to pay it off over time (hopefully with a 0% interest rate if possible).

If you need additional credit, you have two main options. You can try increasing the credit limit on your current card, or you can apply for a new credit card. While purchasing a new card can be attractive for many reasons, such as sign-up bonuses and rewards, it may not be the best choice if you only need it for a specific purchase.

As a general rule, you should only open a new credit card if you plan to use it regularly for some time. This is especially true if there is an annual fee. Having more credit cards In itself, it’s not bad for your credit score, but each card represents an important financial decision that shouldn’t be taken lightly.

If you’re making good use of your new credit card and understand how to use it responsibly, then by all means apply. But if you just want a little more purchasing power, you might be better off increasing your credit limit.

Getting a new credit card has several implications for your credit score, both good and bad. The application’s initial hard request may have a slight negative impact. However, the new credit limit will increase your total available credit, which can lower your utilization and improve your score (this is a relatively important factor). But with a new card, your average credit duration will also decrease, which can hurt your score (credit duration is 15% of your FICO credit score).

How to request a credit limit increase

If you decide to ask for a credit limit increase, you need to figure out how to do it and think about how to reduce your chances of being denied. Asking for a credit limit increase is in many ways similar to asking for a loan, but with the same creditworthiness operating factors.

The timing of your request can be an important factor and can also play a role in how high your credit limit may be. Consider how long the account has been open. If you recently got a credit card, you may want to know your account history before asking for an increase.

Now is probably not the best time to ask for a raise if you have recent late payments or are currently behind on payments. Before submitting your request, try to get good at paying your bill on time to increase your chances of success.

When you feel ready to make a request, you usually have one or two options:

Call the number on the back of your card and ask a representative to increase your credit limit.
Check your online account dashboard or mobile app to find the option to request a credit limit increase.

Be prepared: the request may be granted instantly or it may take some time. In some cases, the issuer may ask some personal questions about your current job and income. They may ask you to explain why you want a higher credit limit.

Be honest, but use this as an opportunity to look good. Please indicate if you have high FICO rating or are a long-time cardholder. Card issuers understand that there are many other companies out there; as long as you are a good borrower, they want to keep you as a client and not lose your business to someone else.

Frequently asked questions (FAQ)

Should I increase my credit limit?

Yes, it’s usually a good idea to increase credit limit— unless you’re worried about overspending. A higher credit limit gives you more purchasing power and can lower your credit utilization, which can improve your credit score. Please be aware that requests to increase your credit limit may require a thorough credit inquiry (if so, this will be disclosed when submitting your request).

How much of a credit limit increase should I ask for?

Some issuers allow you to request an increase of a certain amount, while others do not. If you can charge a certain amount, there’s probably no harm in aiming high. A typical increase may be around $500 or $1,000, but it can vary greatly depending on the card issuer, account history, and credit history involved. The higher your starting credit limit, the higher your increase request can be—up to a point.

Is it better to open a new credit card or increase your credit card limit?

Typically, requesting a credit limit increase is faster and easier than open a new credit cardso this might be a reasonable first option. If you just need a little extra purchasing power, this might be all you need. But if you’ve researched a new credit card and are happy with its rewards and perks, and accept its terms and fees, there’s usually no reason not to open a new credit card—as long as you use it with some regularity. .

How high should my credit limit be?

The right credit limit for you depends on your financial situation and credit history. Typically, the higher your income and the better your credit, the higher your credit limits will be. It’s good to aim for a credit limit that will allow you to cover all of your monthly expenses with plenty of wiggle room for emergencies and for the health of your credit. The lower your use of creditthe better for your credit; The ideal value is 30% or lower. The credit limit you need to reach this utilization ratio will depend on your typical monthly expenses.

Bottom line

Increasing your credit limit may have some quick, obvious benefits. The most important ones are increasing your credit score and increasing your purchasing power. Requests to increase your credit limit are usually easy to make and are usually worth checking from time to time unless the issuer automatically increases your limit. Just remember to maintain your budget and don’t start overspending due to your increased borrowing power—otherwise, you’ll be throwing away those benefits.