Maybe you need extra spending power for home renovations. Or perhaps you’re trying to increase your credit score. Whatever the reason you need extra available credit, asking for a little more on an existing card instead of applying for a new card can be a beneficial tactic.
However, asking your credit issuer for a higher limit needs to be done thoughtfully, carefully and for the right reasons. Here are some tips on how (and why) to ask for a credit limit increase.
More credit can boost your score
Extending your credit limit isn’t just a matter of wanting to buy more stuff. In fact, asking for more credit can be a great way to help build or maintain a positive credit score, according to personal finance blogger David Weliver, who publishes MoneyUnder30.com,
“Many years ago I was buried under lots of credit card debt. And even though I was making payments on time my score was suffering because I was maxed out on my cards,” says Weliver. “My credit utilization ratio was way too high, and getting more credit could have helped.”
Maintaining a low credit utilization ratio (the percentage of credit you have compared to how much you owe) is critical to maintaining a positive credit score, and Weliver says increasing the credit limit on a card is particularly important for consumers who carry a regular balance, especially if the amount owed is around 30 percent of your total available credit.
“Once I started really working on reducing my credit utilization ratio I saw my score improve by 20 to 30 points in a single month,” says Weliver.
As a caveat, Weliver points out that not everyone will be able to take advantage of this strategy.
“If you’re maxed out at like 90 percent of your available credit and making minimum payments for several months in a row, I wouldn’t expect to get an increase if you ask for one,” says Weliver. “But if your [utilization ratio] is typically below 50 percent, an increase is a much less risky proposition for your credit card provider.”
Even if you don’t regularly carry a balance, increasing your credit limit can still work in your favor, especially if you’re new to the credit-building world.
“You may only have a few years of credit history under your belt. And even if you don’t plan on using it, adding more credit will boost your ratio,” says Weliver. “As long as you trust yourself and you know that having more credit won’t cause you to use it irresponsibly, go ahead and ask for the increase.”
Credit-limit increases (probably) won’t ding your score
One of the downsides to getting a new credit card is that the application process requires the issuer to make a hard inquiry on your credit report, which can lower your score by a few points. Getting a credit limit increase, however, doesn’t typically come with the same problem — but you need to make sure.
“Before you go for the increase ask if it’s going to be a hard inquiry,” says Weliver. “It generally makes sense to avoid hard inquiries if you don’t need them. So if they tell you it will be a hard inquiry you need to weigh that against any other credit-building options you may have.”
More credit can help with a balance transfer
If you’re trying to consolidate your credit card debt in order to pay it off more efficiently, a credit limit increase may be useful.
“If you call your credit card company and tell them you need a credit limit increase in order to transfer a balance from another bank, they love that,” says Scott Bilker, author of “Talk Your Way Out of Credit Card Debt” and creator of DebtSmart.com. “It doesn’t guarantee the increase but it’s a great incentive for them to consider it.”
Once you’ve transferred your balance you can try negotiating with your credit card issuer for a better interest rate.
“It costs credit card companies more money to get new customers than to keep existing ones, which means it’s probably cheaper for them to offer you a better rate than to find someone new,” says Bilker.
Be reasonable with your request
For many years Weliver and his wife shared one mid-level cash rewards credit card with a $6,000 limit. And that was all they needed—until they bought their first home.
“We had some renovations underway and started getting really close to our credit limit each month,” says Weliver. “That’s the first time I asked for an increase.”
Weliver called his credit card issuer and told them he wanted to extend his available credit to $10,000. They said they could offer him $9,000 and he took it. Today, Weliver suggests asking for an increase of no more than 50 percent of your current limit.
“Don’t go into it expecting to double your credit limit with one phone call. That’s pushing it,” says Weliver. “And expect that lenders are the ones holding the cards. You might be able to negotiate a little bit, but generally they’re working off of strict algorithms that tell them how much of an increase you’re eligible for.”
What’s more, Bilker says it’s important to understand why you’re asking for the increase in the first place.
“If you’re just looking to add to your spending power or to boost your utilization ratio, ask the person on the phone what they suggest is possible. They might give you some advice,” says Bilker. “But if you’re doing it for the sake of a balance transfer, only ask for as much as you need to make that possible.”
Don’t rush it
According to personal finance expert Natasha Rachel Smith, your best chances of a credit limit increase will come from the card you’ve held the longest.
“Asking for a flat-out increase just a few months into having a card can be seen as a risk factor,” says Smith. “Wait a year or two before you ask for an increase so your provider has a relationship with you and sees a history of managing your credit responsibly.”
What’s more, be cautious about asking all your card issuers for an increase at the same time.
“There may be a hard credit check required, and while one or two hard inquiries in a short window won’t raise any red flags, having more than two from card issuers in a short period of time will send the wrong signal,” says Ian Atkins, personal finance expert at FitSmallBusiness.com. “You’re not desperate for higher credit limits, so take your time. Seek an increase on the one card you’re most likely to get an increase from, then wait a few months before approaching other card issuers.”
Finally, if your credit is in the dumps and you’ve already been turned down for an increase, Bilker suggests waiting for at least six months to try again.
“Build up a solid history of paying on time to boost your score,” says Bilker. “Credit limit increases are only for the most disciplined among us.”