Getting a higher credit limit on your credit card can be helpful or harmful, depending on how financially stable you are. If you can pay your credit card bill in full and on time every month, increasing your credit limit can give you more flexibility and potentially improve your credit score by lowering your credit utilization ratio. But if overspending is a problem for you, a higher credit limit may not be a good idea.
Here are four ways to increase your credit limit, plus tips on how to know whether a credit limit increase is right for you.
If you’re a responsible cardholder with good or excellent credit, a higher limit can boost your credit by keeping your utilization ratio low. Credit utilization, or the amount of your available credit in use, is a major factor in your credit scores. Low utilization is a sign that you’re living well within your means, while high utilization suggests the opposite.
Spending most or all of your available credit every month — even if you pay off your balances — can damage your scores. The general rule of thumb for good credit utilization is to use 35% or less of your limit, both on each card and overall.
“If you’re a responsible cardholder, a higher credit limit can help boost your credit score by helping keep your credit utilization low.”
Increasing your credit limit can be a strategic move after you’ve started earning more money, as your finances will have more flexibility. Say you typically charge $500 per month on your credit card, and your credit limit is $1,000. Your credit utilization is 50%, which is above the recommended 35%. If your limit goes up to $5,000 and you still spend the same $500 a month, your utilization drops to 10%, which can help your credit.
Increasing your credit limit can also prevent you from being charged an over-the-limit fee. However, if you’re frequently spending more than your credit limit, your problem might not be the limit — it could be that you’re overspending and not monitoring your balance correctly. If that’s the case, ask your issuer if they can stop any transactions that will push you over the limit. It’s your responsibility, not the issuer’s, to ensure that you stay within your credit limit.
Even if you’re sure you can get a higher credit limit, evaluate your reasons for wanting one before you make the request. If you’re looking for flexibility or lower utilization, go for it. But if you need more credit because you’re in a consistent state of financial emergency, a higher credit limit is unlikely to solve your problem — and could even make it worse. Before you request a higher limit, also consider that:
Chanelle is a personal finance writer at NerdWallet covering banking. When she isn't finding the best interest rates, she can be found hiking around Lake Tahoe or traveling to the next spot on her bucket list. She previously worked at Fortune, Forbes and the Reno Gazette-Journal. Email: [email protected] Twitter: https://twitter.com/crbessette