Wouldn't it be nice to have a higher credit limit on your credit cards? A higher credit limit could serve as a buffer for an emergency cash flow problem, saving you from searching for short-term loan options. Another advantage of a higher credit limit is a potentially higher credit score through lower credit utilization – assuming that you don't take a higher credit limit as a license to spend more money and increase your debt.
The credit utilization rate, as explained by Rod Griffin, Director of Public Education at Experian, is "simply your balance-to-limit ratio. Add up all of your balances on your credit cards, all of the limits on your credit cards, and divide those totals ... you get the utilization rate. The higher that rate, the worse it is for your credit score." Sean McQuay, Credit and Banking Expert at NerdWallet, suggests keeping utilization below 30%, but Griffin notes that those with the best credit scores utilize less than 10% of their available credit.
In turn, a higher credit score allows you to qualify for better deals on credit card interest rates and perks. It's a win-win situation (but again, low credit utilization requires keeping your spending under control).
How can you increase your credit limit and start the ball rolling? Try asking. If your credit record is clean and you regularly pay your bills on time, a creditor may grant your request as long as the request is not a huge leap over your existing limit. You can use the potential argument of tempting credit card offers from competitors – but if you take that path, be prepared with comparable offers to show your request is serious. Many large credit card issuers will post the criteria for raising a credit limit on their website, so be sure to check and make sure that you meet the criteria before asking.
If your request is rejected, the card issuer will tell you why (and if they don't, contact them to ask respectfully why you were rejected and how you can improve your chances in the future). Perhaps you don't meet all the criteria, your stated reason for the request gave them concerns, your current income or payment history doesn't warrant an increase, or there is some negative information in your credit report. Set up an improvement plan based on the results, and stick to that plan for several months before asking again.
In any case, you should acquire a copy of your credit reports from the three major credit bureaus (Equifax, Experian, and TransUnion) to make sure the information is accurate, and monitor your reports for any future errors. Your path to a higher limit may be as simple as correcting an erroneous entry, or it may require a tighter budget and better control of your spending to reduce debt (which translates into overall risk for a creditor). If you believe there is a mistake on your credit report, you can resolve it with a single click using our credit correction service.
In the meantime, credit consolidation may be a suitable path to a limit increase, if you qualify for a suitable balance transfer card. April Lewis-Parks, Director of Education and Public Relations at Consolidated Credit, explains: "If we have a credit card that has a $5,000 limit to it, and the consumer has $4,000 on it, that's a really high utilization ratio of 80% ... if they take that debt and transfer it to another card that has a higher limit, say a $10,000 credit limit, that $4,000 is much lower percentage-wise and that alone will raise their credit score."
By selecting a balance transfer card with a 0% APR introductory rate, you can devote funds toward paying down debt instead of interest and further increasing your credit score. Of course this requires – yes, we're saying it again – controlling your spending.
Credit card companies are often happy to increase the credit limit to reliable customers. After all, it is in their best interests to lend you more money assuming you pay it back regularly and can handle the amount of debt responsibly. (Did we mention that requires controlling your spending?) Show the card companies that you pose little risk at a higher credit limit, and they are likely to oblige your request.
If you want more credit, check out MoneyTips' list of credit card offers.