It is indeed possible to request and receive a credit line increase. Credit card companies grant them all the time, typically to trusted customers who have proven themselves capable of paying their bill on time every month and maintaining a reasonable credit utilization ratio . A good rationale for the bump in spending power – a recent raise, for example – doesn’t hurt either.
With that being said, it’s also important to examine your own motives in seeking a higher spending limit. Is it a noble pursuit, perhaps in seek of a lower utilization and a higher credit score? Or are you motivated by consumption, the desire to support unsustainable spending habits no matter how much debt you rack up? There are both responsible and reckless credit limit increases, you see, and it’s important to make sure you are not merely adding fuel to a fire.
In order to help you make that determination, we’ve compiled everything you need to know about credit limit increases – from how spending limits are initially set to tips for securing an increase. So check it all out below and take the next step to improved credit card performance.
Credit card companies all do things a bit differently, but most base their credit limits on the same overall factors.
Credit History & Disposable Income: The more disposable income you have and the longer your track record of financial responsibility is, the higher your spending limit will likely be. This makes sense, after all. Credit card underwriting – the process of deciding what, if any, product terms should be offered to a particular consumer – is all about maximizing the chances of profitability. And you can’t turn a profit if you don’t get paid back for what you lend customers.
Credit card companies therefore aren’t going to give a college student thousands of dollars of spending power because the expectation of repayment is so low. A college student, already a risky segment from a responsibility standpoint, is likely to have a very thin credit file and a very limited amount of money at hand.
- Economic Climate: If the economic outlook is gloomy, credit card companies are much more likely to be conservative in their credit offers to all of their customers. In these cases, even if your credit score has risen, you might not be granted additional credit.
- Security Deposit: In most cases, you won’t know how high your credit limit is going to be until you get approved for an account. Most credit card offers do not include this information. Secured cards are the obvious exception. Such cards require the user to place a refundable security deposit that acts as their credit line, providing a safety net for the issuer in case the cardholder doesn’t pay and ensuring the cardholder doesn’t spend beyond his means.
Latest Account & Market Data: Another segment of the credit card market never actually discloses its spending limits, even once your account is active. No Preset Spending Limit credit cards and charge cards – which some consumers mistake to be limitless – have dynamic spending limits that are established on a monthly basis according to the customer’s spending and payment habits as well as the general economic climate.
Not only do NPSL cards make it impossible to recognize when you’re close to your spending limit, potentially putting you in a pretty precarious position one day, but the lack of a straightforward spending limit also obscures your credit utilization with the credit bureaus, potentially damaging your credit score. Some of the most popular cards on the market – Visa Signature and World MasterCard credit cards and American Express charge cards – actually have NPSL features.
There’s really no secret to getting a higher credit limit – no magic bullet or hidden phone line to call. And you’re unlikely to get one unless you can actually support it financially. With that being said, there are a few ways that you can go about achieving augmented spending power, and they include:
- Call & Make Your Case: It is possible to request a higher credit limit either online or over the phone, but many people prefer the latter option because it brings empathy into the equation. So, build a case for why you deserve a higher credit line – including bank records, past payment details, and plans for using the added credit – and call to present it. If you don’t get approved on your first attempt, call again and try your luck with a different customer service representative. Keep in mind that it’s best to employ this tactic at least six months after opening your account.
- Add to Your Secured Card Deposit: If you’re seeking additional credit as a means of expediting credit building efforts, all you really need to do is add to your secured card’s deposit (or get a secured card to begin with). The ability to augment your deposit and thus your credit line over time is one of the best features of secured cards.
- Leverage Your Business: If you initially get nowhere in your quest for a higher credit limit, you may want to pull out the big guns and threaten taking your business elsewhere. It all depends on how much the added spending power means to you and how you feel you’ve been treated throughout the process. This strategy is particularly effective when a company is locked into a fierce competition with a few select competitors, who may happen to be offering lucrative sign-up perks that you can mention in your negotiations.If your credit card company believes it must increase your account’s perks in order to keep your business, a credit line increase might just be in the cards. If your issuer doesn’t feel this way, it might just need some convincing.
- Apply for a New Credit Card: Adding a new credit card to the mix would augment your overall available credit as well as give you access to additional spending power, if needed. The problem is, if your finances are not in a position to support a credit line increase, then you might have a hard time getting approved for a new unsecured credit card.
- Wait for an Automatic Increase: Credit card companies regularly evaluate customer accounts in order to determine if they merit a change in terms. This includes the credit line. So, if you are not in a hurry to get a higher limit, you could just exercise patience and wait until you’re granted one naturally.
- More Available Credit & Lower Utilization: The more available credit you have, the better – considering that credit utilization is a major component of the Amounts Owed section of your credit score, which accounts for 30% of your total score. FICO—the largest credit scoring agency in the United States— calculates credit utilization for each of your cards individually as well as for all of your cards in combination. More available credit will decrease your overall utilization as well as the individual ratios of currently tapped out cards. It will also signal to lenders that you are a trustworthy (as well as perhaps stretched thin) customer.
- Added Spending Power: A higher credit limit obviously enables you to spend more money. This may be a blessing for some, who perhaps need to finance car repairs or pay medical bills. However, it can also be a curse for those who use the added spending power to support unsustainable lifestyles and to dig deep holes for themselves.
- Minimal Credit Score Impact: Requesting and receiving a credit line increase is far less detrimental to your credit standing than applying for and opening a new credit card. Yes, a credit line increase will impact your credit – altering utilization ratios, potentially requiring a credit pull and reducing your disposable income – but the damage won’t be too severe.
- More Debt Potential: The average household owes more than $7,100 on their credit cards. We collectively racked up around $60 billion in credit card debt during 2014 and are slated to accumulate at least that much again in 2015. We obviously have an overspending issue, and that clearly illustrates the danger inherent with a credit limit increase. Used irresponsibly, the added spending power could wind up representing the rope needed to hang your finances.
- Inability to Get Other Loans & Lines: The more credit you already have at your disposal, the less likely another financial institution be to extend you additional credit in the future. Your income and assets only enable you to support so much debt, after all, which means that a higher credit limit could make you less lendable moving forward.
Image: Orla /Shutterstock