Does a Credit Limit Increase Affect Your Credit Score?

How a Credit Limit Increase Can Affect Your Credit Score

A credit limit increase can influence your credit score, primarily by altering your credit utilization ratio. While the initial request might cause a minor dip, the long-term effects are often positive.

1. The Initial Request: The process starts when you request an increase or your creditor offers one. This often triggers a credit check, which can be a soft or hard inquiry on your credit report.
2. The Credit Inquiry's Effect: A soft inquiry has no impact on your score. However, a hard inquiry, common for requests you initiate, can cause a small, temporary dip in your score for a few months.
3. Altered Credit Utilization Ratio: The most significant change is to your credit utilization ratio (your balance divided by your limit). With a higher limit, this ratio decreases, assuming your spending stays consistent.
4. Improved Score Potential: Credit scoring models look favorably on a lower utilization ratio, as it indicates you are not maxing out your credit lines. This is a key factor that can help boost your score.

How Much Will Getting a Credit Limit Increase Affect Your Credit Score?

A credit limit increase can influence your credit score in several ways, both positively and negatively. Here are the key factors to consider before making a request.

• Credit Utilization Ratio. A higher limit can lower your credit utilization ratio, a major factor in your score. This can positively impact your score if your spending habits remain the same.
• Hard Inquiry. Some issuers perform a hard inquiry when you request an increase, which can temporarily lower your score. This small dip usually recovers within a few months.
• Payment History. A higher limit doesn't change the importance of on-time payments. Consistently paying your bill is still the most crucial factor for a healthy credit score.

How You Can Avoid Having a Credit Limit Increase Affect Your Credit Score

Monitor Your Credit Utilization

A higher credit limit can tempt you to increase your spending. To avoid a negative impact, keep your spending habits consistent. Maintaining a low balance relative to your new, higher limit will keep your credit utilization ratio low, which positively influences your credit score.

Understand the Credit Inquiry Type

A lender-initiated increase typically involves a soft inquiry, which doesn't affect your score. However, if you request the increase yourself, it may result in a hard inquiry. This can cause a temporary dip in your score, so clarify the inquiry type beforehand.

Ways to Improve Your Credit Score

Improving your credit score is an achievable goal that can significantly impact your financial life. With consistent effort and the right strategies, you can boost your FICO® or VantageScore, often seeing meaningful changes within three to six months.

• Monitor your credit reports regularly. You can obtain free credit reports from all three major bureaus to identify and dispute inaccuracies, which is a crucial first step.
• Establish automatic bill payments. Since payment history is the most significant factor in your score, setting up automatic payments ensures you never miss a due date.
• Reduce your credit utilization ratio. Aim to keep your credit usage below 30% of your available limit by paying down balances or requesting a credit limit increase.
• Become an authorized user. Being added to someone's credit card account that has a strong payment history and low utilization can help build your own credit profile.
• Diversify your credit mix. Lenders like to see that you can responsibly handle different types of credit, such as a mix of credit cards and installment loans.
• Limit hard inquiries. Avoid applying for too much new credit at once, and use prequalification tools to shop for rates without impacting your score.

The Bottom Line

Getting a credit limit increase can influence your credit score. A higher limit can improve your credit utilization ratio, but the request may also result in a temporary hard inquiry.

Frequently Asked Questions

Does a credit limit increase hurt your credit score?

A hard inquiry from a requested increase can cause a small, temporary dip. However, the lower credit utilization ratio can positively impact your score long-term.

How long does it take for a credit limit increase to show on my credit report?

It typically takes one to two billing cycles for your new credit limit to be reported to the credit bureaus and reflected on your credit report.

Is it better to request a credit limit increase or apply for a new card?

Requesting an increase often results in a single hard inquiry or even a soft pull. Applying for a new card always triggers a hard inquiry.