What are the benefits of increasing your credit line? It might seem to go against some of the current prevailing advice about credit–use less credit, not more and reduce your credit card balances below 50 percent or better.
For many, the idea of increasing your credit line seems counter-intuitive because the idea is to avoid spending more. But increasing your credit line can actually help your credit rating if you understand that asking for a larger credit limit is not the same as planning to spend up to that limit.
Reasons To Ask For A Higher Credit Limit
There are several reasons to consider asking your credit card provider to give you a higher credit account limit. Let’s skip over the ones that have to do with your ability to make larger purchases and the increases you might reap in a credit card loyalty program or rewards program. Let’s go straight to the really important benefits–the ones that directly affect your credit.
The credit benefits to an increased credit limit include:
- A lower credit utilization score (see below)
- More credit may be easier to come by thanks to the higher limit
- The need for additional lines of credit may be eliminated
- Raising the limit on an old card instead of applying for a new one can help your credit scores (see below)
What You Should Know About Credit Utilization
The percentage of your available credit that you actually use (compared to the limit) is your Credit Utilization. If you have three credit cards and you carry balances on all three of them at 50 percent of the limit, your credit utilization score will be lower than someone who carries balances at 70 percent. The lower your score, the better.
Borrowers trying to improve their credit score should attack the problem starting with making all payments on all financial obligations on time–it sounds too simple to be true, but this IS one of the top three pieces of advice from all three major credit reporting agencies–Experian, TransUnion, And Equifax.
When trying to improve your credit score, asking for higher credit limits on your accounts is smart because if you are approved for a higher limit and keep working on paying down the account, your credit utilization is different.
When you carry $500 balances on an account with a $1000 limit, you have a 50 percent credit utilization on that card. If the credit limit is increased to $2000, your credit utilization on that account is 25 percent lower.
The key is to not spend more on that card but to keep lowering the amount. Combining on-time payments with the higher credit card limit can definitely put you on the road toward a higher FICO score if you are consistent and disciplined about reducing your debt and paying on time. Is it too late to begin enjoying the benefits of Increasing Credit Line? No–you can start working on this today.
Joe Wallace is a writer and editor from Illinois. He was an editor and producer for Air Force Television News for 13 years, and has served as Managing Editor for publications including Gearwire.com, and Associate Editor for FHANewsBlog.com. He is also an experienced book and script editor specializing in non-fiction and documentary filmmaking.