When faced with problems, we sometimes jump ahead to difficult solutions and bypass simple ones. For example, there are a number of things that you can do to increase your credit score. You can pay down debts, make sure that bills are paid on time, review your credit for any errors... or you can try a simple phone call.
Did you ever consider calling your credit card company and asking for an increase in your credit limit? A credit limit increase will raise your credit score indirectly by lowering your credit utilization – the amount of credit in use compared to your overall available credit limit. That same mechanism lowers your credit score when you pay down debt.
Using traditional credit scoring methods, credit utilization accounts for about 30% of your credit score. When the change in credit utilization is reported to the credit bureaus (usually within the next billing cycle for that particular card), your credit score should rise unless the effect is cancelled out by other negative factors such as a missed payment.
While asking for a credit limit increase is a simple step, it is an often-overlooked one. A new study from CreditCards.com found that only 28% of respondents have ever asked for an increase in their credit limit. However, 89% of those who asked for a credit limit increase received one.
Why would credit card issuers simply grant you an increase on request? If you have a spotty record of repayment or tend to run up against your credit limit, they may not. Card issuers will look at the risk and reward that you are likely to provide. Asking for a limit increase when you are struggling to handle your current debt load suggests a path to unsustainable debt. If you always make your payments on time and your balances are not steadily increasing toward your current limit, card issuers are likely to see more reward than risk in extending more credit to you.
As you prepare to make your call, make sure that your overall credit picture is in good enough shape to warrant the limit increase. Check your credit report before placing the call to make sure that your credit history is accurately reflected. Errors in your credit report that have gone undetected, such as a fraudulent account opened in your name, could undermine your plans (not to mention your credit score). Let MoneyTips protect your credit and your identity with a free trial.
Be prepared to explain why you want an increase in your limit. Don't be afraid to search competing credit card offers and use them in your discussion if necessary. It's usually more expensive for a credit card issuer to find a new customer than it is to keep an existing one.
Remember that an increase in your credit limit will only increase your credit score when the amount you spend doesn't increase very much. If you look at the limit increase as an opportunity to spend a lot more money, at best you will keep your credit score constant. At worst, you will drop your credit score by spending more than you can afford to pay, carrying over balances and building up interest charges.
Why not try calling your credit card issuer today and see if you can take simple action to raise your credit score? And while you're at it, catch up on any other calls that you need to make. Try giving Mom a call. When's the last time you called her, Mother's Day?
If you want more credit, check out MoneyTips' list of credit card offers.
Here are 3 more reasons to call your credit card company.