If you have a credit card, at some point you may receive an offer from your credit card issuer to increase your credit limit (i.e., the maximum amount you can spend). The question is, do you take them up on it?
There are a number of reasons why a higher credit limit can prove beneficial, such as the potential to lower your utilization rate and greater wiggle room in case of an unexpected expense. But on the flip side, there are certain times when an increase might not make as much sense, and you might be better off waiting and asking later.
When does it make sense to get a credit limit increase?
Just because your lender is offering you the chance to get a credit limit increase does not mean you will automatically get it. Indeed, “whether your request will be approved,” said NerdWallet, “is a matter of timing.” Some indications the timing may be right include:
1. Your income has recently gone up. A higher income, such as from a raise at work, shows the lender you have the ability to afford more expenses,” said CNBC Select.
2. Your credit score is good. “Your credit score can also impact whether you qualify for a higher limit,” said Experian. A good score indicates you can handle debt responsibly.
3. You have a solid payment history with the issuer. A history of making payments on-time also increases the likelihood your lender will approve your request.
4. Your credit utilization is moderate. “High credit utilization can suggest someone having money troubles,” said NerdWallet. So if you have had a history of maxing out your card, your issuer may not approve a higher limit.
5. You have had your account open for at least six months. Lastly, “you’ll also have a better chance if you’ ve had your account with this particular creditor for at least six months to a year,” said NerdWallet.
When should you think twice about asking for an increase?
On the flip side, you might want to think twice about asking for a credit limit increase in the following scenarios:
1. Your credit is not great. Lenders look at your credit score to determine how responsible of a borrower you are, so if your score “isn’t good or excellent, it’s likely that you won’t get approved for more credit,” said NerdWallet.
2. Your payment history is spotty. Frequently late or missed payments also signal to lenders that you are not the most responsible borrower. Same goes for a maxed out card.
3. You recently opened your account or asked for an increase. Often, you have to wait for a little while after you open your account to get a credit limit increase. Further, said CNBC Select, “you may have to wait six months between credit limit increase requests.”
4. You just applied for another credit card or loan. An issuer might be less likely to approve an increase if they feel like “you’re desperate for money or will be overextended if you’re trying to borrow a lot of money quickly,” said Experian.
5. Your income has gone down. Whether due to “a recent layoff, demotion or job switch,” a decrease in income “can hurt your chances of receiving a credit limit increase,” said CNBC Select.
What are the benefits of getting a credit limit increase?
Your credit limit restricts how much you can spend on your credit card, so a credit limit increase offers the obvious benefit of increased purchasing power. This might come in handy should an unexpected cost arise (though you will want to promptly repay that amount to avoid paying interest and falling into debt). It may also allow you to rake in more rewards if your card offers them.
Beyond the ability to spend more, a higher credit limit can improve your utilization rate, which is the amount of your overall available credit you are currently using. If your available credit goes up and your usage remains the same, the total percentage of your credit you are using will go down. As “lower utilization rates are typically associated with better credit scores,” said Money, this in turn can prove beneficial to your credit score.