Why a Higher Credit Card Limit Could Be Your Ticket to a Higher Credit Score
by Maurie Backman | Updated July 21, 2021 - First published on March 27, 2021
A higher credit limit could open the door to more spending -- but it could also work wonders for your credit score itself.
There's a reason credit card issuers set spending limits for cardholders -- while they want you to charge up expenses and pay interest on them, they don't want you to charge so many that you're unable to make your minimum payments. Credit card limits are usually based on a combination of factors, including your income and your credit score at the time of your application. But while having a more moderate spending limit could mean avoiding a dangerous level of debt, having a higher one could actually do a lot for your credit score.
Why it pays to raise your credit card limit
The higher your credit card limit, the more temptation you'll have to spend -- and that's clearly a bad thing. But here's the flip side -- a higher credit limit could also help your credit score improve.
There are a number of different factors that go into calculating your credit score, and one of them is your credit utilization ratio. That ratio measures your existing credit card balances relative to your total available credit among your various cards. A ratio of 30% or less is considered a responsible one, and so sticking to that threshold will help your credit score improve or stay strong. A higher utilization ratio, however, could damage your score and send it plummeting.
Now, here's where a higher credit card limit comes into play: Say you're carrying a $4,000 balance between two credit cards, and your total spending limit on those cards combined is $10,000. That means you're looking at a credit utilization ratio of 40%, which could hurt your credit score. But what if you were to get your combined credit limit raised to $14,000? Suddenly, your credit utilization ratio would fall to about 28.5%, which is favorable territory as far as your credit score is concerned. And that's why it could pay to go after a higher credit card limit, despite the risks involved.
Of course, if you really can't trust yourself not to max out your credit cards, then you shouldn't ask for a higher spending limit. But if you think you'll be able to exercise self-control, have emergency savings in the bank to cover unplanned bills, and know you're not solely reliant on credit cards to pay your expenses, then snagging a higher limit could be a smart financial move.
How to score a higher credit card limit
If you want to increase your credit limit, the solution is simple -- reach out to your credit card issuers and ask. If you've had your cards open for years and your accounts are in good standing, there's a good chance you'll get some sort of boost.
Furthermore, if your income has gone up since you applied for your credit cards, updating that information with your issuers could give you a higher spending limit. After all, it stands to reason that the more money you make, the more likely it is that you'll be able to pay off a higher balance.
There's a danger in having too much spending flexibility on your credit cards. But if you need to build credit fast, it pays to see if you can snag an increase in your spending limit on one or more cards -- especially if you're not worried you'll rack up a host of new charges and wind up with a serious pile of debt on your hands as a result.
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