Takeaways
- Increasing your credit score will give you credit card benefits and decrease borrowing costs.
- Credit utilization has two key components: outstanding debt and credit limit.
- Increasing your credit limit is free and easy.
- Ask multiple lenders to increase your authorized credit limit.
- Don’t increase your spending with increases in spending limits.
Your credit limit plays an integral part in calculating your credit score. Your credit score is a number from 300-850, which provides lenders a prediction of your ability to repay debts. Lenders submit consumer information to credit reporting companies that create credit reports. These credit reports contain various types of consumer financial data that provide credit score companies with information to produce credit scores.
Smart Money -> Deep Dive: What is a Credit Score?
A high credit score can help you secure low-cost debt and help you earn exclusive credit card benefits. Lenders will reward consumers with high credit scores with the best credit cards. Whether you are trying to rebuild your credit or maintain a high credit score, your credit limit is a vital factor in your credit score.
Why Increase Your Credit Limit?
Credit scoring companies use various components of your consumer data to predict how well you will repay new debt. They compile information from credit reporting companies into complicated financial models and assign you a credit score. Different factors of your consumer history affect your score differently. Credit utilization is one of the most meaningful factors in calculating your credit score.
Smart Tip:
The most heavily weighted factor in calculating your credit score is your ability to make on-time payments. Understanding how your credit score is computed will help you improve your finances.
Smart Money -> 5 Steps to Lower Your Credit Utilization
There are two principal components of your credit utilization:
- Outstanding Debt
- Total Credit Limit
Credit scoring companies want you to maintain a low credit utilization, which is determined as your total outstanding debt divided by your credit limit.
Reducing your total amount of debt and increasing your credit limit will help decrease your credit utilization. Increasing your credit limit on your credit cards can be a fast and easy way to lower your credit utilization and simultaneously increase your credit score.
6 Ways to Boost Your Credit Limit
Here are six quick steps to increase your authorized credit limit:
Contact Your Credit Card Company
Increasing your credit limit is the easiest with your credit card company. The fastest way to increase your credit limit is to contact your credit card company. If you are like most Americans with multiple credit cards, it is worth checking with every credit card company. Start with the card you have the best history of repayment with because they will be more amenable to increasing your credit limit.
Online: Log onto your credit card company’s app or website. Most companies commonly offer a drop-down menu on their mobile app or website where you can request a credit limit increase.
Phone: If you don’t see this information provided, call your credit card company to speak with a representative. Ask where you can find how to request a credit limit increase and what forms must be completed.
See If You Are Pre-Approved
With a high credit score you might already be pre-approved for a set credit limit increase. This pre-approved sum is a financial slam dunk because it requires little effort to request this increase. Plus, you will automatically improve your credit score.
Automatically pre-approved? If not, you can determine your next steps by contacting your credit card company. There may be a reason you are not pre-approved, such as rebuilding your credit or only having a short credit history. In either scenario, with a diligent series of consistent on-time payments and reducing your credit balances, a credit limit increase is most likely in your near future. Focus on becoming eligible for more credit.
Become Eligible
One of the fastest ways to become more eligible for a credit limit increase is to pay off your debts. This improves your ability to take on more and demonstrates that you are a good borrower.
Budgeting to make more debt payments is a smart money move. Financial planning can help find areas in your budget where you can allocate more funds to decrease your debt load.
Here are some ways to pay off debt quickly.
- Get caught up on past-due accounts.
- Pay off low-balance accounts.
- Follow the snowball debt repayment method
- Follow the avalanche debt repayment method
Smart Money -> How to Pay Off Debt Fast in 5 Easy Steps
Provide Updated Financial Information
The application process for receiving pre-approved limits is relatively straightforward. You will probably be requested to update your profile with several pieces of information, such as your income and outstanding debt.
Income: Your lender may want to get updated information on your income. If you have found ways to increase your salary or other ways to make more money, inform your lender. Depending on how dated the information your bank or credit card company has on your file, a higher income may be a surprise, which leads to an even higher credit limit adjustment.
Debts: To help assess how much credit to provide, banks and lenders want to know your financial obligations. They view other debts as competition. Lenders want to understand if you have purchased a new home and added a mortgage. It can give them insight into your ability to repay their loans. The lower your other debts, the more likely they will increase your credit limit.
This consumer data helps the credit card company build a meatier personal credit file on you, giving them more information to make smarter lending decisions. If you utilize a credit card with your bank, this may translate into lower-cost borrowing, higher-yielding checking accounts and saving accounts, and more credit card rewards.
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Submit Your Application
The next step in the process is to formally submit your application for a credit limit increase. If your application is submitted on your bank or credit card company website, the approval process may only take a matter of minutes.
If, on the other hand, you must submit a more formal and lengthy application, the process may take a couple of business days before you are informed.
Smart Money -> Best Credit Cards
Receive Your New Credit Limit
Once your increase request for a credit limit boost is processed, it may take as little as one or two business days to access your new credit limit. Lenders report consumer information to credit reporting companies every 30 days. As a result, you may see a change in your credit reflected in a couple of reporting cycles.
Example of Request for Credit Limit Increase
Current Credit Limit: $27,000
Credit Limit Increase: $6,000
New Credit Limit: $33,000
After your updated credit limit is accessible, don’t increase your spending too. A credit card spending spree will act as a counterweight to your newfound credit limit. You want to pay off debt fast, and in concert increase your credit limit. This will help improve your credit score.
Smart Summary
Few actions as easy as increasing your credit limit will enhance your credit score. Making on-time payments can take months of diligence before any jump in your credit score. Be smart with your decisions, and they will pay for themselves. Asking for a higher credit limit is one of those smart money choices.
