Your credit card limit can have a huge impact on your credit score, because one of the most important factors in credit scoring is how much of your available credit you use. As such, requesting a credit-limit increase is an often-cited tip for improving your credit score (assuming you don’t also increase your credit card spending), but this strategy doesn’t come without risks.
One of the most important questions to ask yourself whenever you’re making a move to improve your credit is whether it will end up costing you money. If so, is it worth it?
Requesting a credit-limit increase won’t cost you upfront, like you might encounter if you transfer a credit card balance to a new card and have to pay a fee to do so, but you might end up paying in other ways. For example, if your credit card issuer makes a hard inquiry on your credit report as part of its decision to give you the limit increase, that could ding your credit score, which could result in higher interest rates on other credit you apply for in the near future.
Proper Advance Notice
While credit card issuers can increase the APR on your existing account as long as they give you proper advance notice, it’s not likely that requesting a credit-limit increase would raise the APR on that card, Nessa Feddis, senior vice president and deputy chief counsel at the American Bankers Association, said in an email.
“They can raise the rate for any reason if they give 45 day advance notice, and the new rate only applies to transactions made after the effective date,” she said.
Still, Feddis said she doesn’t know of any bank that uses requests for a higher credit limit to trigger an APR increase.
“The bank cannot automatically raise the rate absent some recent verification of income,” she said. “Thus, they encourage customers to make the request as [they] can then obtain the information from the customer.”
Even if your bank encourages you to ask for a higher credit limit, that doesn’t mean you should do it. There’s still the chance the bank will deny your request, so if you have reason to believe they will, asking for it may not make sense. As we mentioned earlier, it could hurt your credit score if the bank makes a hard inquiry on your credit report as part of the process, and you wouldn’t get the credit-score benefit of a higher credit limit to cushion the blow of the inquiry.
Before you apply for new credit, even with an existing creditor, it’s a good idea to see where your credit stands. You can get two free credit scores, updated monthly, on Credit.com, and if your scores aren’t where you’d like them to be, you can make a plan to improve them.
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