Banks try to strike a balance when customers open new credit card accounts. On one hand, banks want to offer cardholders a high enough credit limit that will allow them to spend as much as possible. But on the other hand, they want to limit their exposure to unpaid charges.
Ultimately, that leaves some cardholders with a smaller credit limit than they would like. Fortunately, cardholders can always request a larger credit limit.
Why ask for a credit limit increase?
There are several reasons why cardholders may choose to request a credit limit increase. Obviously, they may need to borrow more money to finance purchases. While credit cards are a convenient and secure method of payment, the high interest rates for unsecured debts make these products poor instruments of finance.
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A better reason to seek an increased credit limit is to make large purchases that will be paid in full. For example, frequent business travelers require a large line of credit to charge airfare, hotel, rental cars, meals and other expenses. And even when paying all of these charges in full, a traveler’s credit line must be able to accommodate up to seven weeks of charges from the beginning of a statement cycle and the following payment’s due date.
But the most important reason to ask for a larger line of credit is for cardholders to minimize their debt-to-available credit ratio. According to the Fair Isaac Corporation, the creators of the FICO credit scoring formula, the debt-to-available credit ratio makes up 30% of one’s score. One way to improve this ratio is to reduce outstanding debt, but another way is to increase the total amount of credit extended. (You can check to see how your debt-to-available credit ratio is affecting your credit by getting your free credit score from Credit.com.) This later can be done by opening a new account or simply by requesting a credit limit increase from an existing credit card.
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Requesting a credit line increase
On occasion, banks will occasionally offer customers an unsolicited credit line increase. But more often, cardholders must take it upon themselves to make the request. When considering an increase, banks will look at several factors including the cardholder’s record of payment with the bank, their current income, and their credit score.
The good news is that most credit card users will show some improvement in these areas since their initial application. Most cardholders will have established a payment history, and people’s income tends to rise over time.
Asking a card issuer to increase your credit line can give you the purchasing power you need while raising your credit score. Remember, there is little to lose simply by asking for a credit limit increase; the worst thing that a bank can do is say “no.”
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