Do you ever wish your credit limit was just a little bit higher? If you had a $5,000 credit line instead of a $2,500 limit, you could pay for the shoes you’ve been eyeing for months or take the vacation you’ve been planning for years. Believe it or not, it’s possible to ask your credit card issuer to raise your credit limit. But the issue is whether that’s a good idea. Here are five times when it might be okay to ask for a credit limit increase.
1. When You Need to Transfer a Credit Card Balance
There’s more than one way to pay off credit card debt. One strategy is to transfer a balance from a credit card with a high annual percentage rate (APR) to a card with a lower APR.
Balance transfers can help you consolidate debt that you rack up during the holidays or other times throughout the year. But if your credit card with the lowest interest rate has a low credit line, you may need to ask your credit card issuer for a credit limit increase.
2. When Your Debt-to-Credit Ratio Is Too High
Your debt-to-credit ratio (or the percentage of your credit line that you’ve used) affects your credit score. Thirty percent of your score depends on the amount of debt you owe and your debt-to-credit ratio – also referred to as your credit utilization ratio – is factored into that. Using more than 30% of the limit on an individual credit card or across all of your credit cards could hurt your credit score.
If your credit utilization ratio is above 30%, the best way to lower it is to pay off some of your debt. By making more than one credit card payment within a month, you could potentially lower your debt-to-credit ratio to 30% (or less) before your credit card company gives your account information to the credit reporting bureaus.
But not everyone can pay off their credit card debt. If you’re living paycheck to paycheck, for example, you may be more concerned with paying other bills.
If you need to raise your credit score, you could request a credit limit increase. As long as you use your credit cards responsibly and avoid overspending, your debt-to-credit ratio may fall and your credit score may rise.
Related Article: What Is a Debt-to-Credit Ratio?
3. When Your Credit Card Accounts Are in Good Standing
What if your credit utilization ratio is never higher than 30%? And what if you always pay your bills on time and rarely (or never) carry a balance?
If you’ve proven that you’re a responsible borrower, your credit card issuer may raise your credit line automatically. Credit card companies often boost their customers’ credit lines when they’re confident that they can handle a higher credit limit or when they want to make more money (hoping that cardholders will slip up, carry a balance and have to pay interest).
If you’ve been a responsible borrower (for at least six consecutive months) but your credit card company has never raised your credit line, it might be a good idea to ask for a credit limit increase. You probably deserve it. Plus, your credit score might go up since your credit utilization ratio will go down.
4. When You Can Afford It
Perhaps you received a bonus at work or you got a new job that pays more money. Keeping your spending at the same level and sticking your extra income in a savings account (or a retirement account) is probably a good idea. But if you’ve been planning to make a major purchase, you may need to request a credit limit increase.
If your income increases, having access to more credit might make sense. But it’s important to make some adjustments to your budget. That way you’re not spending too much money or taking on more debt than you can afford to pay off.
Related Article: 5 Steps to Take Before Your Income Increases
5. When Your Credit Score Is in Good Shape
Asking for a credit limit increase may count as a hard inquiry. That may happen if your credit card issuer wants to review your credit report before raising your credit line. Unlike soft inquiries, hard inquiries can cause your credit score to dip slightly.
If your credit score is good or excellent, asking for a higher credit limit won’t do much damage to your score if it’s considered a hard inquiry. And since your debt-to-credit ratio will fall, your credit score could improve significantly in the long run.
A credit limit increase isn’t the same thing as taking on more debt. But if your credit card company agrees to raise your credit limit, it may be tempting to go overboard and spend too much money.
While it’s not wrong to want a higher credit limit, you’ll need to consider how it’ll affect your financial situation. If you have enough willpower to prevent a credit limit increase from causing you to accumulate more debt, then asking for a higher credit line might be worth considering. But if you think getting a credit limit increase might actually hurt your credit score, then it’s probably best to avoid asking for access to additional credit.
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