Does requesting credit line increase affect credit score

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Highlights:

• Whether a credit limit increase affects credit scores depends on your debt to credit utilization rate

• You can ask for a credit limit increase on an existing credit card

• A credit card company may also increase your limit without a request from you

One of the many questions we receive at Equifax involves credit limit increases. Specifically, consumers want to understand more about requesting a credit limit increase, or when they might receive one from a credit card company.

“One of the many things to consider with a credit limit increase is understanding your own mindset when it comes to credit,” said Zehra Mehdi-Barlas, director of public relations for Equifax Global Consumer Solutions. “If you’re viewing a credit limit increase as an opportunity to spend more without a plan to continue to pay off the debt responsibly, a credit limit increase may not make sense.” 

Will a credit limit increase affect credit scores? It all comes down to something called your debt to credit utilization rate. That’s the amount of credit you’re using compared to the amount of credit available to you. Generally, this is one of the factors that impacts credit scores, and creditors prefer to see a lower ratio of how much debt you have compared with how much available credit you have. Why? Remember: Before extending credit, lenders want to know that you can responsibly manage the debt you do have – and that you aren’t overextending yourself, financially. 

How to get a credit limit increase 

There are two ways to get a credit limit increase. One is asking for a credit limit increase on an existing credit card – usually one you’ve had for at least a few months.

When you make this request, the credit card company may review one or more of your credit reports as part of their evaluation. Whether this is a “soft inquiry,” which does not impact credit scores, or a “hard inquiry,” which may impact credit scores, varies based on the creditor's policies. If you’re considering a credit limit increase request, consider checking with the credit card company to learn more about their policy.

The creditor may also request proof of your annual income, employment status, and monthly rent or mortgage payments when reviewing your request.

You might also consider checking your own credit reports before making the request to ensure there’s no information that might increase your chances of getting turned down for the credit limit increase.  If you find any information on your credit reports you believe is inaccurate or incomplete, you can dispute that information with the company that reported it or file a dispute with the credit bureau providing the credit report. At Equifax, you can create a myEquifax account to file a dispute. Visit our dispute page to learn other ways you can file a dispute with Equifax.  

The second way you may get a credit limit increase is if a credit card company increases your limit without a request from you. This typically occurs after you’ve demonstrated responsible credit habits such as making on-time payments and paying more than the minimum payment required. 

Whether a credit limit increase stems from your request or the creditor's decision, “what’s most important is evaluating your own personal situation and understanding whether you can continue to handle credit responsibly," Mehdi-Barlas said.

Let’s explore some of the important factors about credit limits that everyone could benefit from knowing, starting with the basics. A credit limit (also called “credit line”) is the maximum spending amount set by your credit card company. It’s based on your credit score, along with other financial information.

A credit-limit increase raises that spending amount, allowing for larger purchases and a higher credit card balance each month. Depending on circumstances, that can be good or bad – or both!

Does requesting a credit limit increase for your credit card hurt your credit score?

Quick answer: it depends. If your credit card company does a soft inquiry, it won’t hurt your credit score at all. Soft inquiries are a limited type of credit report that gives just enough information to help lenders make decisions. Credit card issuers don’t need your permission to do soft inquiries to decide, for example, whether they should prequalify you for a new account.

But if the credit card company does a hard inquiry, your FICO® score (the most common credit score in use) could drop 5 to 10 points. Hard inquiries seek a full credit history, which lenders use as a factor in deciding whether to lend you money. They can affect credit reports for two years or so. However, lenders need your permission to do a hard credit inquiry, so you’ll know when it happens.

If your FICO® score is near 850, the maximum, a few points won’t make much difference. But if your score is lower, a 10-point reduction might hurt your chances for a credit line increase. Before asking for a higher credit limit, consider calling your credit card issuer to find out what kind of inquiry they’ll do if you request a credit increase.

On the bright side, if your credit limit increase request is approved, your credit score could increase, negating any small dings from hard inquiries.

What if my credit limit is raised without asking me?

If you have a good credit history, your card issuer may increase your credit limit without asking – usually when you have a very good credit score. And there won’t be any hits on your score — any credit check they do will be a soft inquiry. If you aren’t interested in a credit limit increase, you can always have the card issuer roll it back.

Is it good to increase credit card limits?

Done the right way, increasing your credit limit is a good thing. If done poorly, your credit score may suffer. Here’s why.

A FICO® score looks at five factors: on-time payments (35%); credit utilization (30%); how long you have had credit (15%); the amount of new credit (10%); and the mix of credit you have (10%). That second factor, credit utilization, is related to your credit limit and accounts for almost a third of your score. It might sound complex, but it’s easy to understand.

Say you have a $1,000 credit limit, and you carry a $300 balance: that’s a 30% credit-utilization ratio. Experts recommend staying below 30% for the total of your combined credit.

If your credit line increases and the account is immediately charged close to the maximum, your utilization ratio might rise well above 30%. In this scenario, a higher limit might eventually hurt your credit.

The advantage of a credit increase is how it can lower credit utilization. If your $1,000 limit gets bumped to $2,000, your $300 balance means a 15% utilization ratio. (That’s half the rate it had been.) That lower ratio looks good to a credit bureau.

By maintaining a responsible spending level — and staying below 30% utilization — future credit reports will reward you with higher scores. In the long run, that could help you get lower rates on new loans. And credit card companies might eventually reward you with automatic credit-limit increases.

How do I ask for an increase?

That’s a good question, but you first may want to ask, “Is this a good time to request a credit increase?” Let’s recap how to answer that question.

Here are some good times to consider asking for a credit line increase:

• When your credit score is at its highest.
• When you’ve had a recent raise, or a promotion with a higher salary.
• After paying off a loan or other
• When you’ve had your account for over six months.

And here are some not-so-good times to consider asking:

• You’ve just requested an increase elsewhere.
• Your employment status has changed due to job loss or lower pay.
• You’ve assumed new debt.
• You have missed payments, have had a loan default, or have been contacted by a collections agency.
• Your credit history is too short.
• Your credit score is low for any reason.

If you find yourself in one (or more) of these situations, start working to correct them. Once you’ve done everything you can to improve your credit score, and before putting in a request for an increased credit limit, ask your card issuer if they will do a soft inquiry and tell you what they find. After all, you don’t want to apply for something if you know you won’t qualify.

Once you feel it’s time to ask for an increase, you can often do an online request. Just log in to your account and look for a button or tab labeled, “requesting a limit increase.”

You can also call the lender’s customer service number (usually printed on credit cards and bills). If you have questions, or an unusual financial situation, talking to someone by phone may be the better choice.

There’s another possible benefit to calling instead of doing an online application: You can ask if you might avoid a hard inquiry by accepting a lower increase in your limit. Lenders sometimes make a decision with only a soft inquiry and the additional information you supply.

Whichever way you apply for a credit line increase, the process should be the same. Your issuer will want updates on your annual income, monthly mortgage or rent payment, employment information, current address, and contact info. Once you provide all that, they’ll make a decision — sometimes right away, sometimes in a day or two.

You might come out the other side with a credit limit increase and a higher score to boot!