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Ever wonder how you can increase your credit limit? With the right intention, it’s not a bad question to ask.
Increasing your credit limit so that you can shop irresponsibly is probably 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 ways you can go about trying to increase your credit limit. We’ll walk through those further below.
What is a Credit Limit
A credit limit is the maximum amount of money you can spend on a credit card.
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 (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…
Obviously, higher income and lower debt levels are good signals to give you a higher credit limit. Similarly, if you have a long credit history of paying back debt on time, this will signal trustworthiness and increase your chances of a higher credit 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 score.
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 to be able to shop more or go 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. With great power comes great responsibility.
That’s enough from Uncle Ben…
Of course, there are 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 out there that you cannot put on your credit card. You’re missing out on reward points by not using a credit card! So, it’s in your best interest to try to increase your limit.
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 the budget and outside of your credit limit, similar to the first point, you want to get 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 and then not have to pay them later.
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 it utilization – how much of your credit limit you are using. The lower your utilization, the better. And obviously a high credit limit would lower your utilization (assuming your spending stays the same).
The one watch out is that opening a new credit card will result a short term dip in your credit score. This is due to a 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.
Some credit cards have an online application you can fill out for an increased credit limit. For others you have to 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 the card 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 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 goes 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.
And if you are looking for the perfect credit card to open next, check out our credit card tool! Its designed to find the best credit card for you!