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Raise the Limits of Your Credit

Posted by on Friday, June 24th, 2022 in Blogs
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Credit cards are useful tools in everyday life. They can be lifesavers in emergencies, with the advantage of claiming discounts and reward points on particular purchases, or be used to automatically pay off subscription services without much of a worry.

Every credit card also comes with its limitations–mainly its credit limit. One thing to note when it comes to credit card limits is that every creditor will have a set limit that is determined by the cardholder’s income and credit score. In addition, even if you as a credit card holder do not need to increase your credit limit for any particular reason, it’s always a good idea to ask the credit card company to do so anyway in case of unforeseen future circumstances.

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Why Increase the Limit?

Increasing the credit limit of a credit card can have several different benefits for the cardholder and any authorized users on that customer’s card. The obvious benefit is having a higher limit to spend on things like consumable goods, such as anything from Amazon, grocery shopping, etc.

But the hidden benefit that most don’t think about is the debt-to-credit ratio that the credit bureaus look at when they determine someone’s credit score. This is the biggest and most impactful reason to increase the credit limit on one or all of your available credit cards.

Let’s take a look at this example: Barry has a credit card under his name that has a limit of $1,000, which he uses to buy his weekly groceries. His last statement says he has a balance of $350 after going grocery shopping for a whole month. With these numbers, he currently has a debt-to-credit ratio of 35% (350 divided by 1000), which means that his credit score will be negatively affected.

It’s a good idea to keep all credit cards below 30% of available debt to maintain a good score; many credit experts consider this to be the most one can utilize before your credit score starts to be negatively impacted. If Barry’s able to increase his credit limit to $2,000, he would have a debt ratio of 17.5% instead, which would positively increase his overall credit score. Without needing to pay off the debt right away, Barry is able to spend more without worrying about affecting his credit score.

In this example, any authorized users under Barry’s card would gain the benefit of a low debt ratio, resulting in a better credit score as well. An increased limit will allow credit card users to spend more without the negative impact of a bad credit score.

Even without the credit-to-debt ratio of a credit card, an increase in credit limit also has the benefit of a general boost to a credit score. Credit bureaus (Experian, Transunion, and Equifax) will score a person higher if they have more available credit in that person’s name. Basically, higher credit equals a higher score.

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How to Increase the Limit

Every credit card company and furnisher out there has its own set of rules and ways to look at their customer’s use of credit cards. There are several things to keep in mind to get the creditor to pay attention to good spending habits, which can lead them to increasing your limit.

First, the credit card company will want someone responsible with their finances, which does not necessarily mean income. Rather, they look at whether the cardholder can consistently pay their cards on time. Being late on a credit card payment can have a negative impact on someone’s credit history and score, and creditors pay a lot of attention to these late payments. It becomes much easier to increase the limit of the card if there are no late payments on it.

Second, creditors will look at a customer’s history with the credit card and see if they are using the card. Credit card companies may deny a limit increase if the cardholder never uses the card and sits on it all the time. So it may be a good idea to spend a low-usage card on small things like an online streaming service or an occasional cup of coffee. Just be sure to pay those cards off to avoid any unnecessary credit card interest.

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Third, most credit card companies will have an option to increase the limit through their online portal or phone app, and cardholders can even call up the furnisher and ask a representative to increase the amount. It only takes a few minutes and can be a great benefit in the long run.

When a cardholder asks for a limit increase, the company will most likely hit the customer with a credit inquiry to one or more of the bureaus just like they would when the customer signs up for a credit card for the first time. It’s a good idea to have a good credit score, especially above 700, when asking for a credit card limit increase. If the cardholder has multiple credit cards from the same company, they may even increase all of the card’s limits after one check, so keep that in mind.

Last, credit cards may even increase their limit without the customer’s prior knowledge or consent if the cardholder uses the card on a regular basis or even after a major purchase. This is always a bonus as there’s no real downside to having an increased limit. However, if for whatever reason the cardholder does not want a credit limit increase, he or she can always ask for a reversal or a decrease in the card limit.

So when it comes to a credit card limit, it’s always a great idea to ask for an increase and have more room to spend on the credit card. An increased limit will help anyone in a multitude of ways, especially if the cardholder adds authorized users to his or her card to share the benefits of the credit limit.

If you have any questions, feel free to give us a call at 877-212-2450!

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