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Why Does My Card Issuer Keep Increasing My Credit Line?

Credit Card Basics, Credit Cards
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Getting a credit increase

Every now and then, you might get an offer from your credit card company congratulating you on being a fantastic cardmember. In fact, you are so great that the company is going to do you a good turn. It’s going to increase your credit limit!

This may come in the form of unilateral action on the part of the credit card company, or it may be an offer for you to request one. The increase could be just a small bump, or it may be as much as 30%. If you have proved yourself to be a good credit risk, then a card issuer is going to engage in additional underwriting and risk assessment to see if they are comfortable with giving you more credit.

There are many reasons for this sudden generosity, and it isn’t exactly altruistic.

Card issuers increase credit lines to boost retention

It’s a jungle out there in the battle for market share. Credit card companies obviously want as many cardmembers as they can get. The more cardmembers they have, the more revenue they can generate from them.

Raising your credit limit just gives you one more reason to continue using that bank’s card. They don’t want you to even consider canceling and moving to another card. Heck, even if you don’t cancel, they don’t want you using another card.

The issuer hopes you’ll carry a balance

Many credit cards generate revenue from annual fees and other services, but nothing is better for a bank than if you carry a balance. If a bank can charge you any interest, especially a high interest rate, and your credit is so good that they think you will pay off that entire balance at some point, you are their favorite customer.

» MORE: When should I ask for a credit limit increase?

It may be better for the bank

It’s a bit of a reverse mind-trick, but credit card companies like to see a low credit utilization rate. This is the percentage of credit you are using of the total amount you have available from all sources. If you carry $10,000 on a card and have $40,000 in total credit available, your utilization rate is 25%. If total credit is raised to $50,000, your utilization rate is 20%.

The idea is that by giving you more credit, it “relieves the pressure” on the utilization rate. You may become a better risk if you have more credit available, but then do not use it or use just a bit of it.

Temporary increases make money

Discover Card recently sent a friend an offer that explains a new revenue tactic. They offered to temporary extend his credit line from $10,000 to $13,000 if he transferred a balance to the card at a 0% rate. The higher limit would be in place, along with the 0% offer for 12 months only.

Discover made this offer because he was carrying a $6,000 balance at 0%. They made 3% on the original balance transfer, so why not make another offer at 0% APR, and hope to collect a 3% transfer fee on a higher limit. By making that higher limit temporary, Discover isn’t taking much of a risk. It returns to the original level in a year, and because the customer had been paying down that 0% card on a monthly basis, it was really a no-risk situation.

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