Requesting a higher limit can hurt your credit if made too soon
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Dear Credit Guy,
The only card I have, besides my debit card, has a credit limit of $1,000, so I use it a lot. Is it OK to always keep a 20 percent balance on the credit card as long as I always make more than the minimum payment?
Also, how long do you usually have to wait to ask for a higher credit limit? I have had my card for four months and have always paid more than the minimum, only ever leaving $200 on the balance when it is reported to the bureaus. – Kaylee
Making more than the minimum payment required is always a good thing, so I do applaud your efforts to do that.
But before addressing your question about how long you should wait before asking for a higher credit limit, let’s talk about the balance you are carrying. I am curious why you feel the need to carry a balance on your credit card.
Paying balance on time? Good. Not carrying a balance? Best
My advice in this column has always been to pay your credit card balances in full each month. This is not just a sound financial practice, but also a surefire way to avoid paying interest on your charges.
It is true that $200 is not that large of a balance, so the interest you are paying is probably minimal. Even if you have a high APR, I doubt you are paying more than $3 or $4 each month in interest.
Small amounts add up, though. If you believe that carrying a balance makes you more attractive to your credit card issuer, I want you to know that it’s not true when it comes to your credit score.
In fact, the lower your credit utilization – the amount you charge relative to your limit – the better for your credit score.
Asking for a credit-limit increase: When it’s too soon
As for asking for an increase to your credit limit, I would urge you to slow down for now. You have only had the card for four months.
- Most card issuers automatically review credit limits after six months.
- Asking sooner than that could be a red flag to your creditor, and you could be turned down. This will be bad for your credit.
- Asking for a higher credit limit could trigger a hard inquiry on your credit reports, something that will almost certainly cause your credit score to drop a few points. Regaining those points will take 12 months, even if you do everything right afterward.
When the lender offers you a credit-limit increase
One thing to note is that if your card issuer increases your credit limit without a request from you, your credit report will likely not be dinged with a hard inquiry.
I would suggest you wait and see if Discover offers you an increase after the six-month mark.
Some creditors will ask you to update your income in order to review you for a possible increase. Be sure to respond to those inquiries to improve your chances of getting an automatic increase.
Things to consider before requesting a credit-limit increase
If you are still intent on seeking a higher credit limit and don’t want to wait, here are some things to know:
- Know why you want a higher credit limit. This speaks to my original question about carrying a balance. I don’t believe it is a good idea to ask for a credit-limit increase unless you are able to pay your balance in full each month without a problem.
- Are you managing your finances responsibly? If you are carrying that $200 balance because you don’t have the money available to pay it off, that says you are not living within your means. Relying on a credit card to get you through is not a sustainable practice. More credit could in fact exacerbate that problem.
- Is your credit in good shape? You will need to be fairly certain that you will not be denied if you do decide to ask for a higher credit limit. This means your credit needs to be in good shape. Check your credit reports for free at AnnualCreditReport.com. You can pull all three reports – from Equifax, Experian and Transunion, the major credit bureaus – at once or you can check one report every four months (you also can check your TransUnion credit report for free anytime at CreditCards.com). This is a good financial practice for everyone.
- Find any credit report errors? Get them corrected. Carefully look over your credit report(s) to be sure that all of the information is correct. Dispute any credit report errors you find.
What to expect of a credit limit-increase request
If you decide to move forward, don’t expect to double your credit limit. In fact, you should be prepared to ask for, or be granted, only a 10 to 25 percent increase at most.
You also should have an idea of what you plan to do with the addtional credit and share that with your card issuer when you call to ask for a higher credit limit.
Video: What is your credit utilization ratio?
For instance, if your card offers rewards, you can say you want to be able to take more advantage of those with the credit-limit increase.
Or you can say you have learned a little about your credit score and would like to lower your credit utilization ratio.
Whether you are successful in increasing your credit limit or not, I hope you will consider my advice and pay your balances off each month.
Just like almost anything, carrying a balance can become a habit that can be very hard to break.
A better habit would be to pay your balance in full and on time every month.
Take care of your credit!
See related: 6 things to know before requesting a credit-line increase, Poll: You can get better credit card terms just by asking, Pay off all card debt? Or leave a small balance?
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