These days, having a high credit limit can seem like a form of financial stability. It’s nice to know there’s extra credit available if you need it. And even if you don’t need it, a higher credit limit can actually result in a higher credit score and increased borrowing power.
It’s all about something called your utilization ratio. It’s a credit-to-debt ratio analyzed by FICO, the group that calculates your credit score. Utilization is estimated to make up as much as 30 percent of your score. In FICO’s view, being at or near the maximum on your credit cards is a sign that you are likely to miss payments or pay late. As a general rule, credit users are advised to utilize well below 50 percent of your limit on any one credit card and across all cards. When your credit limit increases, your utilization ratio goes down, which should boost your FICO score.
So how do you get a limit raise from your credit card provider? Here are five steps to a responsible credit card limit increase:
1. Prepare to explain your motivation
If you are maxed out and drowning in debt, increasing your credit limit is not a great long-term plan. Creditors know this and are not likely to extend you additional credit if you have immediate plans to spend it. Instead, arm yourself with the solid financial benefits of a limit increase, including access to emergency funds, a stronger credit score or more potential rewards from your card provider.
2. Choose the card with the best history
Start with the credit card provider you have been with the longest, or the one where your long-term customer history is best. A new creditor may be less likely to take a chance on you. Plus, each creditor you ask may pull your credit report. Since every query has a small impact on your credit score, target first the card provider that is most likely to grant your limit increase.
3. Talk yourself up
When contacting your credit card provider, be ready to present details on why you are worth the risk. Note any promotions at work, an increase in income, and a track record making on-time payments, along with times when you have paid your balance in full. If you know your credit score is high, that will also help your case.
4. Look for competing offers
Do you get a lot of credit card offers and requests in the mail? Open up a few and note the credit line limits being offered. Your existing credit card providers may be more willing to hear your case after hearing you are being pursued by other creditors.
5. Don’t spend the extra cash
Unless you are making a big purchase on a rewards card and plan to pay it off right away, avoid maxing out your additional credit. If you really need the money, you may be better off applying for new credit and using a lower percentage of that card.
If the additional debt is necessary to support your lifestyle, consider consulting with a credit counselor to make debt management and reduction a priority.