The next time your credit card company offers a no-strings-attached credit limit increase, go ahead and say yes. Why? Because it’s one of the quickest and easiest ways to improve your credit score. You just have to make sure you don’t actually make use of the increased credit limit just because it’s there.
A credit limit increase can improve your credit score
The FICO credit scoring model (one of the most commonly used models in the industry) bases 30 percent of your credit score on what’s called “credit utilization.” That term refers to the amount of credit you’re currently using versus the amount of credit currently available to you. As a general rule, you want to keep your credit usage below 30% of your total credit limit, as that will begin to negatively affect your credit score.
For example, if you have a credit card with a $3,000 credit limit and a $1,500 unpaid balance, you’re utilizing 50 percent of your available credit. If your credit limit increases to $6,000, your $1,500 balance becomes 25 percent of your available credit, which would almost certainly boost your credit score. The benefit of a good credit score is that you won’t be declined for as many loans—and you’ll qualify for better interest rates, too. Plus, as credit expert Matt Schulz points out to CNBC:
“If you’re close to maxing out your credit cards, a credit line increase can give you a little financial breathing room in case an emergency strikes.”
G/O Media may get a commission
Use caution, however
It’s important to note that this only works if you basically ignore your new credit limit. If you struggle with overspending already, you might want to reconsider accepting an increase. Boosting your credit score is one thing; getting yourself into debt you can’t pay off is another.
Also, as The Balance points out, you don’t necessarily want to accept credit limit offers that come with verbiage about needing to “get approved” or “qualify,” as that could suggest that you are requesting more credit from your lender. This could result in a “hard pull” on your credit, which will temporarily ding your credit score by roughly 5-10 points, if only for a few months. An unsolicited offer of a credit limit increase from your lender should be a clear offer, no approval required—and if there’s any doubt, make sure to ask you ask your lender.
Accepting a credit limit increase will likely improve your credit score. If the lender has not offered to increase it, however, you can also request one. In that case, you may temporarily hurt your score for a few months, but the effect will be minimal as your improved credit utilization will have a bigger impact on your score in the long-term. Just remember to time the request so you aren’t applying for a big loan for at least a few months after the request.
This story was originally published January 10, 2020 and was updated April 16, 2021 with additional information.