5 things to know before requesting a credit-line increase
By Dana Dratch | Published: April 5, 2016
Credit card limits are like clothes: If you’re not careful, they can quickly become too small.
If you’ve outgrown your credit line, hold off before you pick up the phone to ask for an increase. There are a few things you need to understand first, and your request could also trigger a few actions on the part of your issuer. So it pays to be strategic.
If you’re considering calling for a credit-line increase, here are five things you need to know first:
1. Why you ‘need’ a credit-line increase. “The biggest question people need to ask themselves is ‘why?” says Kevin Weeks, president of the Financial Counseling Association of America.
Do you need a higher limit to allow for larger items and expenses that you will pay off in full (like business travel or new appliances for the home)? Or because you’re reaching for one card consistently, rather than a handful of other cards that you used to use?
“If you’re good with your credit, it can be a good thing,” he says.
Or are you spending more than you make and find the old limit just doesn’t cut it anymore?
“I always advocate paying balances in full,” he cautions. “Where people can get into trouble is when they continue to spend over budget and tap that little amount on the credit card month after month. Next thing you know, you have a significant amount of credit card debt.”
“Ask yourself why you’re doing it, and be truthful with that answer,” says Weeks. And if you “need" that money, he says, “you have bigger issues than the line on your credit card.”
2. Your credit score. “Before you pick up the phone, you need to check your own credit,” says Bruce McClary, spokesman for the National Foundation for Credit Counseling. Even though you’re an existing customer, it’s “like asking for a new loan.”
So check your credit report (it's free at AnnualCreditReport.com) to see if there are any issues that would hurt your chances. If you find errors on your report, take a couple of months to clean them up, then apply, McClary says.
Also review your credit use, says Ruth Susswein, deputy director of national priorities for Consumer Action. For each card, examine your credit line, and how much of it you use every month (even if you pay it off). That’s what’s known as your credit utilization ratio. The less of it you use, the better it is for your credit score.
Now add up all your card credit lines and compare that to the total usage from all your cards, because credit scoring formulas look at that, too.
Look at your payment history as if you were the card issuer. Had any late payments in the past six months to a year? If so, “Don’t ask for a credit-line increase,” says Susswein. Made only minimum payments in the past six months, especially recently? Ditto. “You’re going to look too risky,” she says.“You’re going to look like you’re having trouble paying off the debt you already owe.”
Ask your credit card issuer ‘Is this going to trigger a hard pull on my credit report?’
|— Danielle Fagre Arlowe
American Financial Services Association
3. The issuer will probably pull your credit. Asking for a boost in your credit limit might trigger a hard pull on your credit report, says Danielle Fagre Arlowe, senior vice president for the American Financial Services Association, a trade group for the credit card industry. Whenever you ask for a loan or credit, the lender may “pull” a copy of your credit report. Those pulls are noted on your credit report for two years and are factored into your credit score for a year, according to FICO, the company that produces the most widely used score.
On average, they can knock a few points off your credit score, according to the company.
“Ask your credit card issuer ‘Is this going to trigger a hard pull on my credit report?’ And they should know,” says Arlowe. “If they don’t, keep asking.” You don’t want to risk shaving even a few points from your credit score if you’re soon going to be financing a big purchase, she says. “It’s a balancing act.”
4. If you get an increase, it could affect your credit. A credit line increase “can, many times, help your credit score,” says Weeks. If you increase your credit line and keep your usage the same, you automatically shrink the utilization ratio. That should benefit your score – if you don’t convert that new credit into debt, he adds.
They will also look at how much credit you already have available, and how long it would take you to pay the tab if you maxed out all of it at once, says McClary.
Based on your income and assets, there’s only a finite amount of credit that lenders will grant you, no matter how good your history and score, he explains. So if you get an extra $5,000 added to one credit card line, that’s $5,000 worth of credit you likely won’t be able to get from another lender, he says.
If you decide to request a credit-line increase, pick one card only, says Susswein. “You don’t want to do that on multiple cards or you’ll look risky, and everyone will turn you down.”
5. How much more credit do you really want? “Have a determination in your own mind,” says McClary.
Know how much you can afford, he says. “You need to do your homework before you have the conversation to know how much you can afford,” McClary says.
“The lender is going to want to offer you whatever they can offer you,” he says. Just don’t let that larger limit tempt you into overspending, says McClary.
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