3 Times to Request a Credit Limit Increase – money.andronezia.com

What can a higher credit limit do for you?

Credit cards can be a powerful tool to improve your financial profile. And when it comes to credit card 101, credit limits are definitely at the top of the list of basics to get the hang of. “Credit limit” refers to the maximum amount you can spend on a particular credit card. That’s determined by the credit card issuer (and you may be given periodic increases without asking), but you can also request a credit limit increase. 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 number of ways. If your credit limit goes up from $2,000 to $4,000, you can charge more on the card. But you could also see an increase in your credit score thanks to a lower credit utilization ratio. This refers to the difference between how much revolving credit (your credit limit) you have versus how much you are actually using at any given time. The general rule is that you should keep this number below 30%.

For example, if you have a credit card with a $4,000 limit, you should try to keep your balance at any given time to less than $1,200 (30% of your credit limit). Ideally, you pay off your balance in full each month and don’t carry it over month to month – otherwise you’ll end up paying handsomely in interest on the balance.

Here are some scenarios when you might want to ask your card issuer to increase your limit. Note that if you ask for an upgrade and are turned down, you may have to wait three to six months before you can try again.

1. You have increased your credit score

While having a higher credit limit can increase your credit score, as we discussed above, if you already have a higher credit score than when you first got the card, you may want to ask for a raise. Maybe your credit score is languishing in the “reasonable” range, and you decide to focus on improving your score. So you take on a second job to make extra money to pay off some of your existing debt, while also focusing on making all your payments on time. Now you are sitting on a credit score in the “good” range. Your credit card issuer may be willing to increase your limit in this scenario — which can also increase your score even more.

2. You have increased your income

Have you gotten a promotion or even changed careers recently? If you’re making more money now than you did when you got your credit card, it might be a good time to ask for a credit limit increase. You must provide your annual income when you ask for a raise. Your income matters to credit card issuers because thanks to the CARD Act of 2009, it must take into account your ability to make the required payments on cards. If your income cannot support your requested credit line, you will likely be refused.

3. You want more purchasing power for some reason

Let’s say you’re getting ready to buy some new furniture and you want to use your favorite cashback credit card to get cash 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 abroad, you may want a higher credit limit on your travel credit card, because it doesn’t charge foreign transaction fees and you intend to charge your expenses while abroad. .

If you’re looking for a fairly simple way to improve your credit score and increase your credit card’s purchasing power, consider asking for an increase in the credit limit on your card.