How to Raise Your Credit Limit

Andrew Weber is a senior director of planning philosophy, research and guidance at Northwestern Mutual.

Your credit limit is essentially a snapshot of your buying power. The higher your limit, the more you can borrow. When leveraged correctly, a larger credit line can also help improve your credit score.

But being able to charge more to your credit card isn’t always a good thing. You may be tempted to overspend, which could mean getting deeper into debt. Let’s talk about how credit limits work, along with the pros and cons of requesting an increase.

How do credit limits work?

When you take out a credit card, the issuer will give you a credit limit. This is the maximum amount you can borrow. If you have a $1,000 credit limit, for example, you can’t charge more than $1,000 to your credit card. If you do, you’ll have to pay some or all of your balance before you’re able to put additional charges on your card.

Credit card companies typically consider the following factors when determining your credit limit:

1. Your credit history: If you have other credit accounts in good standing and a history of making payments on time, you’re more likely to have a larger credit line. The opposite is also true. If you have a prior bankruptcy or delinquent accounts on your credit report, that could lead to a lower credit limit or higher interest rate. Or in some cases, your application could be declined altogether.

2. Your income and debts: This helps the credit card issuer determine how much debt you can reasonably afford. Will you be able to afford your monthly payments if you max out your card?

3. Your credit utilization ratio: This is the amount of available credit you’re currently using. Let’s say you already have two credit cards with a combined credit limit of $10,000. If you have $5,000 in total debt, your credit utilization ratio is 50 percent. The lower this ratio, the more likely you’ll be to have a higher credit limit.

Keep in mind that your credit limit is different from your credit score. The information on your credit report determines your credit score, which tells lenders how creditworthy you are. A healthy credit score makes you more likely to get approved for new credit—and with the most favorable rates and terms. The most widely used credit score is the FICO Score, which ranges from 300 to 850. A strong credit score could open the door to a higher credit limit and allow you to get better rates when taking out a loan—like a mortgage.

How do I increase my credit card limit?

Requesting a credit limit increase is usually pretty straightforward. You can log in to your online account or check your bank’s website or app for instructions. In most cases, you can make your request online or over the phone. According to the credit bureau Experian, you’ll have a better chance of getting an increase if this is your first request and you’ve had the account for at least six months.

Consider taking the following steps before requesting a credit limit increase:

1. Review your finances

Your income, expenses, debt and credit score will likely come into play. Strengthening these things can help you qualify for a credit increase. It’s also wise to chat with your financial advisor before making any moves. They can suggest personalized strategies to improve your financial situation.

2. Choose when to apply

If your credit score just went down or you’ve recently lost your job, it might not be the best time to request a credit line increase. On the other hand, if your income is on an upward swing, that could have a positive impact on your request.

3. Consider adding another credit card

Instead of requesting a credit limit increase, you could open a new credit card. This can bolster your spending power in the same way. Adding a new account to your credit report could also improve your credit score. (New credit makes up 10 percent of your FICO Score.) Just remember that carrying two balances means that you’ll have two monthly payments.

Does requesting a credit increase hurt your credit score?

If you ask for a higher limit, your credit card company will likely run a hard credit inquiry to review your credit file. Hard inquiries stay on your credit report for two years, according to Experian. That will have a short-term negative effect on your credit score (you can expect a decrease of fewer than five points). It should bounce back after a year or so.

How long does it take to get a higher credit limit?

In most cases, eligible cardholders can get approved immediately. However, it’s possible that your credit card issuer will need more time to review your request.

How often should I request a credit limit increase?

It’s wise to keep these requests to a minimum. Again, adding new hard inquiries to your credit report can temporarily drag down your credit score.

Pros and cons of credit limit increases

Getting approved for a credit limit increase has its benefits, but there are also some drawbacks to consider.

Pros

• Better buying power: This can give you more opportunities to cash in on credit card rewards. You’ll also have greater financial flexibility. Just remember that a higher credit limit is no replacement for a strong emergency fund. And just because you can put more on your card doesn’t mean you should. You should always have a plan to pay for what you’re spending on the card.

• Possible credit score benefits: Extending your credit limit will automatically decrease your credit utilization ratio, assuming you don’t incur any new debt. That’s good news for your credit. (How much you owe accounts for 30 percent of your FICO Score.) Using your credit card responsibly can also help strengthen your credit score in the long term. It’s typically best to keep your credit utilization under 30 percent. So, if you get your limit up to $9,000, that means you wouldn’t want to owe more than $3,000 on your card at a time.

Cons

• Potential for overspending: Having the ability to charge more to your credit card could be a slippery slope. You might be tempted to spend more than you normally would—and get stuck in a debt cycle.

• Temporary effect on your credit score: Again, requesting a credit line increase will likely ding your credit in the short term.

If you’re thinking about how to raise your credit limit, look at your larger financial picture. Debt is a key watchpoint in your larger financial picture—if you don’t stay ahead if it, it can get in the way of you reaching your financial goals.

Your Northwestern Mutual financial advisor can provide personalized guidance about financial moves you can make to reach your goals. They’ll ask questions to get to know your priorities, helping you find opportunities and blind spots to grow and protect your money along the way.

Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP^®, CERTIFIED FINANCIAL PLANNER^®, and CFP^® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.