Ever wonder how to increase your credit limit? With the right intention, it’s not a bad question to ask.
Having the right intention matters.
Increasing your credit limit so that you can make irresponsibly purchases and go into debt is usually a bad idea. However, increasing your credit limit so that you can make a necessary purchase, or even just make ends meet, can be a great idea.
There are a few tactics you can utilize to increase your credit limit. We’ll walk through those further below.
What is a Credit Limit
Simply put, a credit limit is the maximum amount of money you can spend on a credit card. It’s the available credit, or loan, made available by the credit card issuer.
Your credit limit would be the sum of all the individual credit limits from all of your credit cards. If you have only one card, then the math is easy.
So, if your credit limit is $1,000, then that is the maximum amount you can put on a credit card before having to pay some of it off.
How is a Credit Limit Determined
Credit card companies determine your credit limit by rolling two dice and then multiplying the numbers together.
As expected, your credit limit is determined through a complex mathematical process that includes a number of factors, such as your:
- Current debt levels
- Credit history and payment history (how trustworthy you are)
- Current credit limits from other cards (as a cue for what the credit limit should be for this one)
- And more
Higher income and lower debt levels are good signals to give a credit card company and usually results in you receiving a higher credit limit. Similarly, if you have a long credit history of being able to pay off debt on time, this will signal trustworthiness and increase your chances of attaining a higher limit.
There is no way to know exactly what your credit limit will be as it varies by credit card as well. But, improving the factors above will increase your chances of getting a better credit limit.
Reasons to Increase Your Credit Limit
As mentioned, there are good reasons to increase your credit limit, and bad ones.
Bad reasons to increase your credit limit would include things like:
- Buying something you cannot normally afford
- Going further into debt that you cannot pay back
As much as a credit card can feel like “monopoly money,” I promise you, it’s not. You have to pay it back.
Of course, there are also good reasons to increase your credit limit! They include things like increasing it to make ends meet, to make a large purchase, or to increase your credit score.
To Make Ends Meet
The first good reason, to make ends meet, is pretty self explanatory.
For example, if your monthly expenses are $1,000 but your credit limit is only $500, that means there are $500 of expenses that you cannot put on your credit card each month. You’re simply maxed out.
You’re also missing out on reward points by not using a credit card! It’s in your best interest to ask for a credit limit increase so that you can take advantage of the perks that a credit card offers.
To Make a Large, Planned Purchase
Another good reason to figure out how to increase your credit limit would be to make a large, planned purchase.
For example, a medical expense or home good. If this item is in your budget but outside of your credit limit, similar to the first point, you want to buy it on a credit card if you can.
Related to this reason would be if you are moving large purchases up to hit a credit card bonus. For example, a lot of premium credit cards offer a sign up bonus if you spend a certain amount (like $2,000) within the first 2 months. If you would not regularly spend $2,000 in 2 months, but there are necessary purchases or payments that you can move up to hit this payment, it may be good to take the hit and pay them now in order to hit the bonus.
Don’t be afraid to request a credit limit increase for purchases that fall within your budget.
To Increase Your Credit Score
Last, increasing your credit limit can be a good way to increase your credit score.
One key measure of your credit score is credit utilization – how much of your credit limit you are using.
For example, if your limit is $100, and you spend $50 within a month, your utilization ratio would be 50%.
The lower your utilization, the better.
A high limit naturally lowers your credit utilization rate, assuming your spending stays the same.
Plus, there are countless benefits to having a good credit score. Which include:
- Higher approval chances on better credit cards (that offer great cash back rewards)
- Better interest rates on loans
- And more
The one watch out is that opening a new credit card will result in a short term dip in your credit score (that lasts for approximately six months). This is due to a hard inquiry, or hard credit check.
3 Ideas on How to Increase Your Credit Limit:
Let’s say you have a good reason to increase your credit limit – here are some ideas on how to go about doing it.
1. Simply Ask
The first idea is the easiest – simply ask for a credit limit increase.
Some credit card issuers have an online application you can fill out for an increased credit card limit. For others, you have to do it over the phone and call in. Either way, it’s a pretty straight forward process.
It’s best to come with some hard data to help substantiate your ask, just in case. For example, if your salary has increased or if you have been reliably paying off your credit card debt in full for over a year, be sure to bring that up.
2. Apply for a New Card
The next route if you cannot increase your credit limit on one card is to open another. Even if your credit card limit is the same on the second card, you have essentially just doubled your credit limit (and spending power).
The one watch out here is that opening a second credit card will lower your credit score temporarily. It’s not something you want to do frequently (or before buying a house), but once or twice a year is no problem.
Be sure you are getting the best second credit card for you before applying!
3. Increase Your Income
Last but not least would be to address one of the root cause’s of this issue. This might be the most effective way to increase your credit limit if option 1 fails and option 2 is not right for you.
Of course, increasing your income is no easy feat, but it is one of the most important factors that go into determining your credit limit. If you can get a raise at work, or even start making some extra money through a side hustle, it will raise your chances of getting an increased credit limit down the road.
If you are successful in option 3, then you can go back and try option 1 (simply asking!) a few months down the road. Lenders will be more inclined to improve your limit if you have a better annual income.
Summary: How to Increase Your Credit Limit
When done for the right reasons, requesting to increase your credit limit can be a good idea and a smart personal finance move.
Not only will it increase your spending power, but it will also provide added benefits like an improved credit score over the long term.
If you are looking for the perfect credit card to open next in order to improve your credit limit, check out our credit card tool! Its designed to find the best credit card for you.
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