Dear Credit Card Adviser,
One of my credit card issuers keeps increasing my credit limit without asking me. I keep my balances low, but can the increase negatively affect my credit score? Can you have too much available credit that it hurts your credit score?
The good news here is twofold. First, credit-limit increases don't hurt your credit score. In fact, they could even help your credit score. Here's how.
One of the key factors contributing to your credit score is the utilization rate, or the percentage of available credit you use on your credit cards. This rate is calculated for each card individually and for all your cards in aggregate. The lower the rate, the more it boosts your credit score. The goal is to keep the rate below 20 percent.
For example, if you have a credit card that has a $3,000 credit limit, ideally you should only charge up to $600, or 20 percent of the limit. That shows you have discipline when it comes to charging on your credit cards and you're not risky because you aren't close to maxing out your credit card.
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So, your issuer is actually helping your utilization rate by increasing your limit. Say you are charging that same $600 balance, but your limit is only $1,500. Then, you have a 40 percent utilization rate. If your issuer bumps the limit to $3,000, now your utilization rate has fallen to 20 percent and helps your credit score. This, of course, only works if you can resist the urge to spend more on your card with a bigger credit limit.
The second piece of good news is that you're getting a credit-limit bump because you already have good credit. You see, credit card issuers consistently review their customers' credit to make sure they have not become riskier borrowers.
Issuers pull maintenance or account-review credit reports from the three major credit reporting bureaus -- Experian, Equifax and TransUnion. These allow lenders to see your balances on other credit cards and how you've been paying those bills.
If your issuer finds that you have been using other credit cards and paying those bills on time, they may give you a credit-limit increase to entice you to use their card over others in your wallet. Even though you're not happy with your limit increases, many other consumers are almost flattered when they receive one, and issuers are happy to increase customer satisfaction, says Eric Lindeen, marketing director for Zoot Enterprises, a Bozeman, Mont., company that provides credit-decision and loan-origination solutions to financial institutions.
"A credit increase gives issuers the opportunity to make a good impression," he says. "It makes consumers feel good about themselves."
So, there's no harm in getting those credit-limit increases. But, if you don't want them, you can call your issuer and decline the increase, Lindeen says.
"I never heard of an issuer who would not respect that request," he says.
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