Most credit cards come with a ceiling that can, in some cases,
keep your credit score from breaking through to new heights. While
you don't get to determine the height of the ceiling, you can try
to have an influence.
Somewhere in the mass of numbers printed on your monthly credit
card statement is your
. That's your ceiling -- the maximum amount the card issuer has
authorized you to charge each month.
To a large extent, the height of that ceiling is out of your
control. Your credit card issuer sets your credit limit when it
gives you the card, taking into account your credit history, credit
score and your income. Issuers can raise or lower your limit at
whim -- there are no laws that prevent them from doing so.
The only right you have concerning credit limits is in avoiding
Credit CARD Act of 2009
prevents card issuers from processing transactions that would put
you above your credit limit, and then charging you fees for going
over -- unless you have signed up to authorize charges over your
credit limit. If you don't opt in to that, your card issuer cannot
legally charge you an over-limit fee. The act also prevents issuers
from charging you a fee that's more than the amount you went over
Even though many issuers automatically raise your limit after
months of responsible borrowing and repayments, you can also take
the matter into your own hands and ask for an increase. Keep in
mind that if your card is brand new, your request will probably be
ignored until you've established good borrowing behavior.
The right reasons
Before you pick up the phone, ask yourself why you want a higher
limit. One good reason is to improve your credit score. Lowering
credit utilization ratio
, the percentage of your available credit that you are using, can
boost your credit score substantially as credit utilization
accounts for a big chunk -- 30 percent -- of your
In general, you should aim to keep your spending
far below 30 percent of your credit limit
. In other words, if you're spending $1,500 or less a month using a
card with a $5,000 limit, you're OK -- though the highest credit
scores go to those with spending levels below 10 percent of their
limit. The higher you go, the more you need to either cut spending
or increase the limit. If you have several cards with varying
credit limits, add those limits up and divide your total balances
by the sum of all your credit limits to find out how much of your
available credit you're using.
For example, if you have two credit cards, one with a $1,000
credit limit and one with a $500 credit limit, your total available
credit is $1,500. If you owe $500 on one card and $200 on the
other, your total debt is $700. Divide $700 by $1,500 and your
total credit utilization is 46 percent -- which is far too high to
get the best credit score.
The lower your total credit utilization, the higher your
possible FICO score, which is especially beneficial if you're
thinking of applying for a mortgage or another big loan in the near
may offer another good reason to boost your credit limit: If you're
saving points for, say, a trip to China, a $1,000 a month credit
limit will get to you to Shanghai sometime around the next
millennium. If you are able to charge more of your regular expenses
to the card and pay off the full balance at the end of each month,
you'll boost your points-earning potential.
If you're disciplined, a higher credit limit can also provide
peace of mind as an emergency cushion. "As you're building credit,
every two years or so ask for an increase," says Adri
Miller-Heckman, a coach and trainer for financial advisers who is
based in Farmington, Conn. Situations change, she points out: A
divorce can result in a higher cost of living, or a medical
emergency can require some backup funds. "Just to know it's there
gives you a sense of comfort," she says.
The wrong reason to ask for an increase? "You're desperate,"
says Denise Winston, a Bakersfield, Calif.-based personal-finance
consultant and author. If you need an increase because you're
maxing out every card, every month, "don't even ask," she advises.
"You won't get it anyway."
Which leads to the asking part. Applying for a credit-limit
increase is just like applying for credit. "They will pull your
credit history. They will ask questions. You have to go through the
process," she says.
Be prepared for one temporary negative side-effect: Asking for a
higher credit limit triggers a
hard credit inquiry
, which can lower your credit score temporarily. So, "apply for it
when you need it, not just when you want it," Winston advises.
Assuming it's granted, and you pay the bills on time, your higher
credit limit will soon boost your score and more than erase the
Ready to make the call the 800 number on the back of your card?
Here's what to expect.
The customer-service representative may ask if your financial
situation has changed, how long you've been at your current job or
how long you've lived in your current house. If your answers to the
tough questions indicate that a request for a higher limit is in
your best financial interests, here's a guideline for the
conversation (printable version: "
Script -- how to ask for a credit limit
YOU: Hello, my name is ____ and I'd like to request a higher
credit limit on my credit card.
SERVICE REP: Let's see if I can help. May I have your account
information and ask why you'd like a higher limit?
YOU: I just learned a little about my credit score and would
like to lower my utilization ratio. ("Sound like an educated
consumer," Winston says.)
At this point, the service rep might turn down your request.
SERVICE REP: I'm sorry, we're not offering any credit-limit
YOU: As a company policy? Or to me specifically? You do realize
I have many other credit offers. (If it's you specifically, find
out why and then get copies of your credit reports, Winston
If the service rep offers to help:
SERVICE REP: OK. What kind of increase are you looking for?
YOU: I'm not sure. What can I quality for?
SERVICE REP: We can find out. Do you want to start the
YOU: Yes, but can you tell me if an increase will change my
interest rate or minimum payment?
Proceed with the application when you know the details and how
an increase may or may not affect your account, Winston
If you do apply for and receive a higher limit, congratulations
-- and proceed with caution. "Just because it's available to you
doesn't mean you have to spend it," says Miller-Heckman.
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