Credit limit increases don’t hurt your credit score. In fact, they could even help your credit score. Using your credit card isn’t bad for your credit score if you’ve got a larger line of credit, make on-time payments, and keep your credit card debt under control.
What’s a credit card limit? A credit limit is the maximum amount of money your credit card company determines you can spend on your credit card. This is important to know, because you’ll want to understand how credit limits might help or hurt your credit score, along with other factors that might impact your financial health.
Check out this article for a walkthrough on things you need to know about the relationship between credit scores and credit limits — or, click on one of these links to jump straight to the answer to your question.
- What is a credit limit?
- What is a credit score?
- Can a credit line increase help my credit score?
- How can credit limits hurt my credit score?
What is a credit limit?
If you’re applying for a credit card for the first time, there’s plenty to learn. Credit cards, credit scores, debt, and bill payments can all seem like intimidating and complicated topics.
Let’s start with a simple credit limit definition: a credit limit is the maximum amount of money that you can spend on your credit card.
If you’re applying for a credit card for the first time, lenders are likely to give you a lower spending limit. Why? Because you’re new to the world of credit, you haven’t racked up a history of using your credit cards responsibly.
If you spend over your credit limit, you may be penalized with an overcharge fee, or the card may be declined.
What is a credit score?
That brings us to our next important definition: a credit score is a three-digit value that indicates the likelihood you will repay your debts.
You build a payment reputation the same way you might build any other: by performing well or badly. There are three major credit institutions that monitor and calculate credit — TransUnion, Equifax, and Experian, all of which use different models to assess your ability to repay your debt.
These credit reporting institutions look at a variety of factors, like whether you’ve kept up with your student loans or car payments, and if you have any delinquent accounts.
Can a credit line increase help my credit score?
It’s important to understand the relationship between your credit limit and your credit score. You’ll be happy to hear that credit limit increases can actually help improve your credit score! Let’s see why. One way that financial institutions determine your credit score is by measuring the percentage of your available credit you’ve used. Let’s unpack that. Available credit is the amount remaining within your credit limit.
Say you have one credit card with a $5,000 credit limit, and so far this month, you’ve spent $1,000. That means that you’ve spent 20% of your available credit.
Many financial experts suggest that you don’t spend too far over 30% of your total available credit. This is your credit utilization rate. Using up too much of your line of credit can make you appear riskier to lenders; conversely, spending a small amount of available credit can increase their confidence that you’ll stay on top of your payments.
So, increasing your total available credit is a great way to improve your credit score. If you find that you’re spending more per month than you did when you first got your card, it might be time to request an increase. That way, your credit score could actually improve with your increased spending capacity.
It’s just simple math: While your $1,000 a month in expenses makes up 20% of your total credit at a $5000 credit card spending limit, getting your limit increased to $10,000 reduces that percentage to a credit-healthy 10%.
How to Increase Your Available Credit
You can increase your total available credit in a couple of ways.
- The first is to take out more credit cards; having three credit cards with $5,000 limits will increase your available credit total to $15,000. That comes with risk, however, as having too many credit cards can also have an impact on your credit score—plus, it can just be a lot to keep track of.
- You can also request an increase from your credit card company. Many banks and credit unions have an online portal where you can manage payments and review expenses; those sites also usually have a link for requesting a credit limit increase. You might also call and speak to a representative.
Some consumers are hesitant to ask for a higher credit limit; according to Sallie Mae, more college students choose a credit card because it has a lower limit than a higher one.
Don’t be afraid of a higher limit! Most of the time, if you’ve been responsible with your credit card, you’ll be granted an increase. And remember, this does not hurt your credit score, so don’t hesitate to ask if you feel you need a little extra room in your line of credit.
Check out this TransUnion guide to factors that affect your credit score for more info on what can hurt and improve your score, if you’re worried.
How can credit limits hurt my credit score?
So far, it seems like credit limit increases are all good news. Of course, as with everything finance-related, you should keep in mind the risks as well as the rewards. Here are three credit limit-related things that could hurt your credit score if you aren’t careful:
1. Having a large unpaid balance
If you increase your credit score, and then go out and max out your credit card and are unable to pay the balance at the end of the month, you could be putting your credit score at risk. This is especially true if you do this often, and have a balance rolling from month to month accruing interest.
The New York Federal Reserve Bank reports that Americans’ average credit card debt has been steadily increasing this decade. With great spending power comes great spending responsibility, so be sure to manage your personal spending habits carefully even if you get an increase in your line of credit.
2. Getting a reduction in your line of credit
Changes in your line of credit can go both ways. Check the fine print in your credit card agreement to see whether you are subject to changes in your line of credit at the discretion of the card issuer. If that’s the case, your credit card company may decide that a smaller line of credit better suits your spending habits.
If so, your credit utilization ratio will go up, so your credit score might go down. You might consider calling your credit card company for an explanation for why they decreased your line of credit.
Most often, it’s just because you aren’t using your credit card enough, rather than because you’re exceeding your credit limit. If that sounds like you, try to remember to use it more frequently—just be sure you’re meeting your monthly payments.
3. Not requesting an increase as your spending increases
Say you land that awesome new job with a solid salary, and now you’ve got more disposable income to spend on the things you love. That’s great! Buy that kayak, upgrade your gaming laptop, or start those guitar lessons—just be sure that before you start putting all that good stuff on your card, you get an increase on your credit card spending limit. You don’t want to be halfway through your Greek vacation and realize that you’re at 90% of your credit line with four more islands to visit.
Be sure that if you plan on spending more than you previously had been, you get an increase in your credit card spending limit. This is helpful because (a) you will have a more favorable credit utilization ratio, and (b) you may be less likely to push up against your spending limit, which can reflect poorly on your credit score.
If you notice a serious decline in your credit score, consider calling your credit card company and bank to see if they have any information on why your credit score dropped.
Having a higher credit limit can actually be beneficial to your credit score as it reduces your credit utilization ratio. If you do get a credit limit increase, spend responsibly to keep your financial health in the best shape possible.