Maybe you're still building your credit but your current credit card limit is lower than what you need. Or maybe you have a big purchase coming up and need more available credit. Whatever the reason, you're in the market for a credit limit increase.
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Only there's just one problem — you don't know how to increase your credit card limit or if it's even a good thing for your credit score.
You're in luck! We're about to walk you through the steps for applying for a credit limit increase, as well as the benefits and drawbacks of getting one, so you'll have the info you need to decide what's right for you.
The No. 1 benefit of increasing your credit card limit is that your credit limit increases. But that benefit brings more benefits, which are listed below.
Gain more purchasing power
One of the key reasons to increase your credit card limit is to increase your purchasing power. A higher credit limit can help you if you need to make a big purchase and wouldn't be able to put it all on your card with your current credit limit. It's also helpful for people who are still building their credit or those who are rebuilding their credit. In those cases, many credit card companies issue low credit limits to start. But you can potentially increase that limit after you improve your credit score or create a track record of making your monthly payments on time.
Improve your credit score
One lesser known (but very important) reason for increasing your credit card limit is that it can help improve your credit score. (Yes, you read that right.) One of the metrics that goes into calculating your credit score is your credit utilization ratio, which is calculated by dividing the total amount of credit you're using by the total credit available to you. A credit utilization ratio is the amount of credit you are using divided by the total credit you have available to you. To get a good score, you should stay under 35%1 (the lower the better) of your available credit on any one card. That means that if you have a $10,000 credit limit, you should only ever owe less than $3,500 on your card at any time. Frequently go over that? Increasing your credit card limit can help optimize your credit utilization.
An emergency safety net (when your emergency fund isn't enough)
Financial planners often tell people to have at least three to six months of savings to cover their expenses in case of an emergency or if they lose their jobs. But what's not talked about as much is how having available credit can help. Saving an emergency fund in your savings account should always be your default option. But some emergencies can't be paid for in cash and having room on your credit card to pay for them could be a lifesaver in a pinch. Especially if you're still working towards making your emergency fund as robust as you need it to be.
Did you know?
How often can I increase my credit card limit?
Wait four to six months to a year between credit card limit increase requests.
If you've recently gotten a new credit card or a credit limit increase, you were likely offered the best credit limit you could get at the time. Applying for an increase a week later isn't likely to be successful.
The No. 1 downside of increasing your credit card limit is that your credit card balance could increase. That could mean you get into more debt, which could have a negative impact on your credit score.
Higher limit means more total debt
One big downside of a higher limit is the potential for more debt. If you're experiencing financial difficulty and have used the rest of your available credit, you're likely better off refinancing your credit card debt via a lower-interest personal loan or line of credit.
A rule to remember: if you aren't sure if you'll be able to use that extra credit responsibly, you're likely better off skipping an increased credit limit on your credit card account.
A hard credit check will impact your credit score
What are some other consequences of increasing your credit card limit? like applying for a credit card increase can decrease your credit score over the short term. That's because one factor in calculating your credit score is how much credit you apply for, which is tracked via every hard credit check inquiry a lender makes. This is confusing, isn't it? After all, we already said that a credit card limit increase could improve your credit score! That's still true and will likely outweigh the impact of a hard credit inquiry since credit requests are worth a smaller percentage of your total score. So, why does this matter? It could make a huge difference if you're about to apply for a personal loan or a mortgage. In that case, you're better off doing that application first, then applying for a credit card limit increase.
It will impact your credit mix
Some people rely too heavily on credit cards rather than applying for other types of credit to diversify their credit mix. This is important since credit cards typically have higher interest rates than personal loans, auto loans or lines of credit. Before applying for a credit card increase, ask yourself (or better yet, a financial advisor) whether another credit vehicle might be a better fit. Because guess what — having a diverse credit mix is one of the things that helps boost your credit score.
It impacts other borrowing
When it comes to getting approved for a mortgage or a personal loan, the credit limit on your card is considered in determining how much you can borrow. A credit limit that's too high could make you less attractive as a borrower or decrease the amount you qualify for. That said, for it to have a big impact, your combined credit limits on all of your credit accounts would have to be fairly high relative to your income.
If you're serious about increasing your credit limit, you'll want to know all the steps. You might think this is the hardest part. But, in truth, it's actually the easiest. There are a number of avenues to get your credit limit increased. Just remember that applying creates a hard credit check. Before you apply, you might also want to learn more about how to increase your credit score.
Through your online banking account
It's simple to apply for a credit card limit increase through your bank's online account. At Scotiabank, for example, these are the steps:
- From your Accounts page, select the credit card you want an increase on
- Select "Additional Services"
- Select "Increase Your Credit Card" and follow the instructions
- Typically, this involves confirming your current income and giving permission for Scotia to perform a hard credit check
- You get notified in two business days whether you're approved or not
Call your card issuer
There is a phone number on the back of your credit card. Call that number and ask about applying for a credit card increase. They'll walk you through the application process and ask you to confirm your current income and other details. The best part? Sometimes they can tell you over the phone whether or not you're approved!
Go into a branch
This one takes a little more work because you have to leave your house. However, if you're already at your bank branch, just let the teller know you want to apply for a credit card limit increase . As in the other cases, you'll have to fill out an application and answer some questions.
Can I raise my credit card limit without asking?
Sometimes lenders decide to pre-approve cardholders for an increase based on their history of on-time payments. When they extend you additional credit in this way, they don't do a hard credit check.
If you go through all the work of applying for an increase and get denied, it can be disappointing — especially if you were counting on the increase. But knowledge is power. If that happens, here's what you should know.
- It's not personal. While it likely feels personal, credit card limit increases are calculated based on a formula. If you didn't get approved, it says nothing about you or your ability to responsibly repay your debt. It's about your credit history and income. You could even have good credit but, according to the issuer's rubric, giving you a credit limit increase is too big of a risk. Hard credit check inquiries will stay on your credit report for three years, but credit bureaus say that might not affect your credit score for that long.
- Your income is too low. Another common reason many credit card limit increases are denied is because the cardholder's annual income is too low to support that amount of credit or because of their employment status. This is especially true if you're unemployed. People who've recently transitioned to freelance work or started their own business can also face this issue – even if their income is high. Credit card issuers calculate your income over the last two years and use the average from that. If you don't have a two-year track record, your first year's income is counted as zero and added to your current year's income then divided by two. That means that they only count half of your income from the year you've worked. If you're denied because your income is too low, increasing your income can help improve your chances of getting a limit increase in the future. You may want to reapply after your next raise.
- Your credit score isn't high enough. Another reason could be that your credit score isn't high enough so you might need to keep working to build it. Paying your credit cards on time, keeping your credit utilization under 30% and following other responsible money habits can help boost it. You can reapply for a higher credit limit if you still need to when you have a higher credit score. It's always a good idea to explore ways to increase your credit score, decide on how you'll achieve it and check your credit score regularly.
Whether you decide to go ahead with it or not, it's important to keep in mind that increasing your credit card limit has both advantages and disadvantages. Increasing your credit card limit can help you boost your credit score, but it can also hurt it. Remember to look at things like your credit mix, utilization ratio and other criteria we mentioned above before applying for a credit limit increase. Also, keep new credit limit increase requests to no more than every four to six months, or even better, once a year.