If I Request a Higher Credit Limit, Will it Increase My Score?
Increases in your credit score are caused by a variety of factors, including how well you manage your credit accounts and the number of accounts you have in good standing. Raising the limit on your credit card can have positive or negative impacts on your credit rating. The extent to which your score increases or decreases after a credit line increase depends on the status of your credit account.
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Factors Influencing Your Credit Score
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There are five primary factors influencing your credit score, and they include payment history, amount owed, length of credit history, new credit and types of credit used. At 85 percent of your score, payment history, amounts owed and length of credit history are the most important factors influencing your credit. Requesting a higher credit limit could be beneficial as long as you keep your card in use and manage it responsibly.
Risky Business
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Requesting a higher credit limit is, in many ways, the same as requesting a new credit card. With more opportunity to accumulate debt, the borrower is seen as a higher credit risk, which may mean a decrease in credit score. However, relative to the top three influences to your credit score, increasing your credit limit has a minimal impact on your credit score. It is not until you misuse your credit account that an increase to your credit limit can cause significant damage to your score.
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Credit Utilization
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Your credit utilization ratio is the amount charged to your card relative to your credit limit. The lower your credit utilization ratio, the more your score increases. The higher your credit utilization ratio, the more it hurts your score. Credit utilization is taken into account for credit cards individually and together. For example, if you have two credit cards that each has a $100 limit and you charge $50 to one card, you have an overall credit utilization ratio of 25 percent. However, on one card, your credit utilization ratio is 50 percent.
According to Bankrate, a good credit utilization ratio is below 30 percent. Increasing your credit limit results in lowering your credit utilization ratio. As long as you do not overspend on your credit card, your score increases each month as a result.
Responsible Credit Use
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Using your credit card responsibly is essential when increasing your credit limit, because misuse can lead to an overflow of debt. Having more credit means having an opportunity to spend more. To maximize your credit rating, you should not charge more than you can afford to repay in one to two billing cycles. Paying your balance in full each month before the due date results in paying no interest charges and enhances your payment history with the creditor.
Positive Relationships
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The length of your credit history is important, because it shows you are able to maintain credit relationships over a long period. Credit card companies generally seek long-term customers who know how to manage their credit accounts. For this reason, length of credit history on your credit report refers to both how long you maintain a credit account and the last date of use. Increasing your credit limit on an existing account is a way to retain and use an older account and lengthen your credit history. Avoid keeping an account open with a zero balance. Making small charges to your card regularly and repaying the debt immediately helps you keep your credit rating in optimal standing.
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