If you don’t have a very high spending limit on your credit card, you may want to consider applying for a credit limit increase. A higher credit limit can reduce your credit utilization ratio, which can improve your credit score. It can also give you more buying power and can help you feel more secure that you will be able to handle unexpected emergencies. Your next question may be, “When should I apply for a credit limit increase?”
Your Credit Limit
Your credit limit is the maximum amount of money that the card issuer is willing to let you spend. When you apply for a credit card, the bank or credit union sets the credit limit. Some companies require that the account be open for a certain number of months before you can be considered for an increase. If you’ve been using the card responsibly for a while, some companies may automatically raise the credit limit after a period of time.
A Good Time to Apply
There are certain situations that make it a good time to apply for a credit limit increase. If your household income has increased or you’ve recently gotten a new job with a pay increase, it may be a good time to apply. Other things that may make it likely you’ll be approved for a credit limit increase include paying down a large amount of debt or having a significant improvement in your credit score.
When Not to Apply
If you’ve recently lost your job or had a pay cut, or if you’re close to maxing out your credit line, it’s not a good time to apply. Don’t apply for a credit increase if you’ve recently missed a payment, had other hard inquiries on your credit, or know that your credit score has decreased recently. You also shouldn’t apply for an increase to your credit limit if you know that you’ll be tempted to spend whatever is available.
How to Apply
If you’ve decided it’s a good time to apply for a credit limit increase, you can usually apply for it online, or call the customer service number on the back of your card. Keep in mind that applying for a credit limit increase will probably show as a hard inquiry on your credit report. Your credit score may drop temporarily from having a recent inquiry, but it won’t have a negative impact on a long-term basis.
Protecting Your Credit
Don’t apply for a credit limit increase without considering whether it’s the right time to apply for one and don’t apply for several new accounts at the same time. Continue to pay all your bills on time and keep an eye on your credit report to make sure your accounts are reporting correctly and that there are no accounts being listed that you don’t recognize.
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