What happens to your credit score if you get a credit limit increase?
Your credit score is not just a random number. On the contrary, it is calculated according to different factors, each of which has a different weight.
Your payment history, for example, carries the most weight when determining this number, and it indicates how timely you are with your bills. Your credit utilization rate is another important factor that goes into your credit score, and it measures how much of your available revolving credit you are using at one time.
It is for this reason that obtaining a credit limit increase could actually increase your credit score. But that will only happen under the right circumstances.
A credit limit increase could be a positive thing
There are different scenarios in which you may qualify for a spending limit increase on your credit card. If you can show that your income has increased, your credit card issuers might be willing to give you more spending latitude. In addition, if you have been an account holder in good standing for many years, an increase in your credit limit may be granted to you if you request it.
A higher limit on your credit cards could help improve your credit score. Let’s say you owe $4,000 on your credit cards and you have a total spending limit of $10,000 for work. That’s a 40% usage rate, which could hurt your score. If you were to get a $4,000 credit limit increase on your various cards, bringing your total revolving credit limit to $14,000, that would drop your utilization rate to just under 29%. And that, in turn, could help your credit score climb.
That said, a higher credit limit will only help your credit score if you’re not actually using it. The way to keep your credit utilization ratio low is to charge far less than you can on your credit cards. If you get a credit limit increase of $4,000 but spend another $4,000 once it’s in place, it won’t do your credit score any good.
Additionally, a higher credit limit could open the door to more temptation on the spending front. If you’ve had trouble controlling your spending in the past, you may not want to put yourself in this position.
Another way to reduce your credit usage
If you want to see your credit rating improvement and you’re already doing a good job of paying your bills on time, then it’s worth focusing on your credit utilization rate. But that doesn’t necessarily mean getting a credit limit increase. You can also reduce this ratio by paying off some of your existing credit card debt.
This will not only improve your credit score, it could also save you a lot of money by sparing you more accrued interest. While there’s nothing wrong with trying to boost your credit score by increasing your credit limit, it’s also important to reduce any existing balances you have as quickly as possible.
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