Having a higher credit limit has advantages like providing more financing and improving your credit utilization ratio if your spending remains the same. But it can also work against you, especially if you change your spending habits.
You may try to improve your credit score by trying to increase the credit limit on your credit cards because a key factor in your score on a credit report is your credit utilization ratio. However, higher limits have both pros and cons to consider. Learn about the ways to boost your credit limit with various strategies that will be to your benefit.
- High scores are better than lower credit scores because they show lenders you are a reliable borrower.
- While higher scores are better, some ways of raising your credit score can cause more financial harm, such as opening new credit to improve your credit utilization ratio.
- With higher credit scores, you are more likely to get approved for a loan and with better terms.
- You can increase your credit score by making payments on time and reducing your debt.
Advantages of Having a High Credit Limit
In general, raising your credit score and having a high credit score will benefit your finances and financial opportunities. And one way to do that is by raising your credit limit.
If your ratio of debt to credit is lower, the credit utilization factor that goes into calculating your credit score will improve your credit score. Essentially, when you show lenders you don't need to use your full credit line, you are providing a sign of a responsible borrower.
Another benefit to having a higher credit limit is that if you have a rewards card, a higher limit can give you more opportunity to earn more rewards.
Having a higher credit limit can also give you additional financial resources to use, such as in case of an emergency.
Disadvantages of Having a High Credit Limit
The downsides of having a high credit limit include the potential for you to go further into debt as well as the fact that applying for new credit can lower your credit score.
While having a higher credit limit may boost your credit score, be cautious when raising credit limits. Essentially, how you use the higher credit limit will determine the ultimate impact on your credit score.
The most obvious reason to avoid having too much credit available is that you could spend more, further increasing debt and actually hurting your credit score if you can't repay the loan. Think carefully about taking on a higher credit limit just to raise your credit score.
One way to raise your credit limit is to apply for a new credit card. However, when you apply for loans, even revolving loans like with credit cards, you lender make a hard inquiry, which is reflected in your credit report. This hard inquiry allows them to see your credit history, so they can determine whether to approve you, for what amount, and under what terms.
A hard inquiry can negatively impact your credit score, although the impact will be temporary. Having too many hard inquiries on your credit history shows lenders you may be desperate for cash.
When to Ask for a Credit Limit Increase
You can ask for a credit limit increase from your current card provider at any time, but the best times to ask are when:
- Your income increases
- You establish yourself as a borrower who makes payments on time
- Your credit score increases
The amount of increase you request is up to you and you can base it on your personal budget and goals. But remember, there are no guarantees your credit card issuer will increase your credit limit by the amount you request, if they increase it at all.
How Do You Qualify for a Higher Credit Limit?
You can qualify for a higher credit limit in several ways, including by raising your credit score, by paying down your debts and by making payments on time. You can also request a credit line increase after you have proven to make payments on time with your current credit card.
Does Closing a Credit Card Hurt Your Credit Score?
When you close a credit card, you can negatively impact your credit score because it could affect the length of your credit history, or amount of time you've had credit. It could also affect your credit utilization ratio, which is the proportion of the credit you've used compared to the amount available to you.
How Many Credit Cards Are Too Many?
The right amount of credit cards for you will depend on a number of factors, but in general it's best to have two to three credit cards to avoid overspending and to maximize rewards. Having more than one credit card can provide an additional source of funds in an emergency and provide a payment option if one card is not accepted by a retailer.
The Bottom Line
In general, it is good to have a higher credit limit because a higher credit limit improves your credit utilization ratio, which benefits your credit score. But if you don't use your higher credit limit wisely, it could work against you by increasing your debt load. If you're considering taking on more credit, ensure you are prepare to use it wisely by making all of the minimum payments on time and keeping your credit utilization ratio low.