The quick answer? Depends on what you do with that boost.
- A higher limit on your credit cards could help improve your credit score.
- But if you use that higher limit, the opposite might happen.
Your credit score isn’t just a random number. Rather, it is calculated based on different factors, each of which carries a different amount of weight.
Your payment history, for example, carries the most weight in determining that number, and speaks to how punctual you are with your bills. Your credit utilization ratio is another important factor included in your credit score and measures how much of your available revolving credit you’re using at one time.
Generally speaking, once your credit utilization ratio exceeds 30%, credit score damage can occur. On the other hand, a low utilization ratio can help improve your credit score.
This is why getting a credit limit increase could end up raising your credit score. But that will only happen under the right circumstances.
A credit limit increase could be a good thing
There are different scenarios in which you might qualify for a spending limit increase on your credit cards. If you can show that your income has increased, your credit card issuers may be willing to give you more wiggle room on the spending front. Also, if you’ve been an account holder in good standing for many years, you may be granted a credit limit increase upon request.
A higher limit on your credit cards could help improve your credit score. Let’s say you owe $4,000 on your credit cards and have a total spending limit of $10,000 to work with. That’s a 40% utilization rate, which could be hurting your score. If you were to get a $4,000 credit limit increase on your various cards, bringing your total revolving credit limit to $14,000, that would bring your utilization ratio down to just under 29%. And that could, in turn, help your credit score go up.
That said, a higher credit limit will only help your credit score if you don’t actually use it. The way to keep your credit utilization ratio low is to charge much less than you can afford on your credit cards. If you get a $4,000 credit limit increase but spend an extra $4,000 once it’s in place, it won’t do your credit score any good.
Also, a higher credit limit could open the door to more temptations on the spending front. If you’ve had trouble keeping your spending under control in the past, you may not want to put yourself in that position.
Another way to reduce your credit utilization
If you want to see your credit score improve and you’re already doing a good job of paying your bills on time, then it’s worth focusing on your credit utilization ratio. But that doesn’t necessarily mean getting a credit limit increase. You can also lower that ratio by paying off a portion of your existing credit card debt.
Doing so will not only help your credit score, but it could also save you a lot of money by avoiding further accrued interest. While there’s nothing wrong with trying to boost your credit score by increasing your credit limit, it’s also important to reduce any existing balances you have as quickly as possible.
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