Asking for a credit line increase could help you to boost your credit score. But should you ask for one?
I currently have over $95,000 in available credit on my credit cards. That's not because I'm about to go on a spending spree. It's because I've been vigilant over the years about asking for credit line increases every chance I get. This technique has paid off and helped me to earn a credit score above 800.
Asking for credit line increases could likely help you to boost your score too -- but you need to know when and why you should ask for them.
Why should you ask for a credit line increase?
A credit line increase is an increase in your available credit on an existing credit card account. If you previously had a $1,000 credit line on an American Express card, you'd ask American Express to increase it. You wouldn't get a new card if approved -- you'd just be allowed to borrow more.
Asking for a credit line increase can help your credit score because it affects your credit utilization ratio. This is one of the most important factors that affects your credit. It's calculated by dividing the amount of credit used by the amount of credit available -- so increasing your available credit will lower the ratio.
If you had $1,000 in available credit and owed $500, your credit utilization ratio would be 50% ($500/$1,000). But if you got a credit line increase to $2,000 and still owed $500, your credit utilization ratio would go down to 25%.
Your credit utilization rate should ideally be below 30%, but the lower it is, the better. Because I don't charge anywhere near $95,000 on my credit cards, my credit utilization rate is very low and this has helped to bolster my score.
Asking for a credit line increase is better than opening a new credit card
Opening a new credit card could also increase your available credit and help your credit utilization rate. But asking for a credit line increase is a better way to accomplish the same thing. That's because opening a new credit card lowers your average account age, but simply increasing an existing credit line doesn't.
Account age is another factor that determines your credit score. While it isn't weighed as heavily as credit utilization rate, having an older average age of account will boost your score because it shows you've been responsible with credit for a longer period of time.
Opening a new credit card will also result in an inquiry being placed on your credit report every time. Inquiries can reduce your credit score because lenders get nervous when you start applying for a bunch of new credit. Asking for a credit line increase sometimes results in an inquiry on your record, but often it doesn't -- especially if you've been a good customer, have always paid on time, and you ask for only small increases each time.
When an inquiry is placed on your credit report, that happens because the credit card company did a “hard pull,” on your credit. Although I've asked for dozens of credit line increases, I've never had a hard pull put on my report because of it. That's because I request increases for only a few thousand dollars at a time and I always talk to the creditor first.
When (and how) should you ask for a credit line increase?
If you're convinced asking for a credit line increase is a good idea, you just need to know how to do it.
Typically, you can sign into your online account and ask for an increase in your credit line. This is usually listed under Account Options, but it can vary by card issuer. You can also call your credit card company and ask for a credit line increase. Calling is a good approach because you can ask if the request will trigger a hard inquiry. If they say yes, you may want to wait until another time to request the increase.
You'll be granted a credit line increase only if the creditor is confident giving you more credit isn't risky. So, you shouldn't ask for an increase if you've recently made a late payment or if your card is maxed out. If you have a fair amount of credit available already and you've been responsible with making every payment on time, it's a good time to ask.
You'll also be asked your income when you apply for a credit line increase. If you've recently had a raise, this increases the chance your request will be approved -- so consider asking shortly after your income has gone up.
Asking for a credit line increase only takes a few minutes -- and it's worth the effort
If you can get your credit line increased a small amount every few months without a hard inquiry on your credit report, you should soon have tons of available credit. Your credit utilization rate will be low, and your score will be higher because of it. If you think you can qualify, why not give your credit card company a call today and ask if a credit line increase could be an option for you.
The Motley Fool owns and recommends MasterCard and Visa, and recommends American Express. We’re firm believers in the Golden Rule. If we wouldn’t recommend an offer to a close family member, we wouldn’t recommend it on The Ascent either. Our number one goal is helping people find the best offers to improve their finances. That is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
