the decision to increase the credit limit can be confusing and may happen in various ways. it might be possible that you have outgrown your available credit limit and want to request more. sometimes, credit care companies themselves offer extra credit limits on your existing credit card if you have used your credit card responsibly. but what is the impact of a credit limit increase on your credit score? does it increase or decrease your credit limit? let's discuss all these points:
if you want to request a credit limit increase or you have just got one, here are some points that you should consider before making the final decision.
if you have a credit card in good standing, there are two ways that you may get a credit limit upgrade. the credit card company may decide to automatically increase your credit limit based on the factors such as how long your account has been open and whether you have used your credit responsibly.
if you have a requirement for higher credit, you can request your credit card company to increase the credit limit. if you are requesting a credit limit increase, you have to provide information such as your income, employment status, and monthly mortgage or rent payment. your credit card company may evaluate these documents along with other factors to determine whether they should approve your request or not.
the next big question is - does it affect your credit score? the answer usually depends on how the process to increase the credit limit was initiated. if your credit card company or lender requests a copy of your credit report in order to evaluate your request, it would be considered as a hard inquiry. a hard inquiry is conducted by a lender to take into consideration how much additional credit you should be given based on your credit history. a hard inquiry could drop your credit score since credit score bureaus consider how recently and how frequently you have applied for new credits.
requesting a credit limit increase will affect your credit score or not depending on whether your credit card company puts a hard inquiry or not. it's advised that you ask your lender or credit card company about their procedure before requesting a credit limit increase.
the effect of the increased credit limit on your credit score depends upon how you use your credit card. if you keep your spending limit low and pay outstanding dues on time, your credit score should not be negatively affected by the credit limit increase. in fact, a higher credit limit can help you achieve a low credit utilization ratio which is healthy for your credit score.
most credit bureau recommends having a credit utilization ratio under 30% of the overall limit. low credit utilization ratio, along with responsible financial behaviors such as on-time payments, could actually help you improve your credit score over time.
having a higher credit limit is a good thing. before requesting a credit limit increase, check these qualifying criteria to increase the chances of a higher credit limit approval:
- when you apply for a credit limit increase, your credit card company would want to see your most current financial and personal information to consider you for a credit limit increase. hence, you should keep your financial and personal information up to date.
- this is an important way if you want to build and improve your credit history, you should always pay credit card bills on time. avoid paying the minimum due on your credit card bills, instead, settle the overall outstanding every month. by showing responsible financial behavior, you can not only save money on interest charges, but the credit card companies would also be willing to approve your credit limit increase request.
- you should review your credit report regularly to make sure your information is up to date and is error-free. you can get your credit report and credit score for free from each of the four major credit bureaus operating in India - Experian, TransUnion CIBIL, Equifax, and CRIF Highmark.
yes, you can always decline a credit limit increase if you don't want it. your credit card company will reset your credit limit to its previous amount. the process of credit limit increase varies from company to company, hence, it's advised that you contact your credit card issuer to discuss your options and know more about the possible impact of the same on your credit score.
yes, your credit card issuer may decrease your credit limit if you have a number of missed or late payments, or if you are not using the card much—or at all. you should note that if your credit limit is reduced, it would increase your credit utilization ratio, which in turn would decrease your credit score.
you should keep checking your credit report and credit score from time to time to make sure your information is updated and free of any errors. get your credit report and credit score for free on CRED.