Does Increasing Your Credit Limit Affect Your Credit Score?
Increasing the limit on your credit account can positively or negatively impact your credit score. The credit utilization rate affects how an increased credit limit will impact the health of your credit score.
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Increase in Credit Limit: Positive Impact
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An increase in credit limit can raise a credit score if the debt-to-credit ratio, or credit utilization rate, remains under 30 percent. If a debt ratio is currently above 30 percent, increasing the limit of a credit card can lower the current debt ratio to 30 percent or less. The total debt ratio represents 30 percent of a credit score.
Increase in Credit Limit: Negative Impact
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Increasing a credit limit along with the amount of actual debt can damage your credit score. For example, the account holder may have $300 in debt and $750 in available credit, which would be a debt ratio of 34 percent. If the account limit is increased to $1,600 and an additional $800 is charged, the debt ratio is now 69 percent, which can negatively impact a credit score.
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When Will a Creditor Raise a Card's Limit
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Many credit card companies will not raise a credit limit unless the account has been open for at least six months, payments have been made on time and the card was used regularly.
How to Ask for a Credit Limit Increase
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Some companies will raise a limit automatically, or the account holder can inquire. Inquire about limit increases online or by phone.
Warnings
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Sometimes an account holder will close other credit accounts once the limit on one account has been raised. Closing other credit accounts can have a negative impact on your credit score. When approved for a credit increase, don't close other credit accounts.
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References
- Photo Credit credit card and hand image by Warren Millar from Fotolia.com
