4 ways a credit limit increase can help you
If you have a credit card, you've probably noticed that you have a set credit limit. Your credit limit is determined by various factors such as your income, credit history, and credit score. Your credit limit is the maximum amount of money that you can charge to a card, so you'll only ever be able to spend that much unless you get a credit limit increase. Over time, your card issuer may raise your limit, or you can ask for an increase. Here are some ways a credit limit increase can help you.
1. Lower your credit-utilization ratio
When it comes to determining a credit score, several factors are considered. Your credit utilization ratio, or how much of your available credit you use, is one of those factors. This ratio makes up 30% of your FICO® Score. A credit limit increase will raise the amount of available credit you have, meaning the ratio of your debt to your available credit will be lower.
2. Raise your credit score
Over time, a credit limit increase can help you raise your credit score. That's because a lower credit utilization ratio will look good, and it can impact your score significantly. If you continue to use the same amount of credit, you'll likely start to see your credit score go up even after you have a credit limit increase.
3. Increase your credit card rewards
If you're using a top rewards credit card to earn rewards, you'll be happy to know that a credit limit increase may help you tack on more points and miles. If you plan to make large purchases, you can more easily do this when you have a credit card with a higher credit limit. That means you can earn more points on those larger purchases. You'll also be able to charge more of your regular bills and expenses to your card, resulting in even more credit card rewards.
4. Be prepared for an emergency
You never know when an emergency may occur. If you don't have an emergency fund saved up and your credit limit is low, it may be challenging to pay for an unexpected expense. A credit limit increase can give you more wiggle room and allow you to charge a large purchase in the future.
How to request a credit limit increase
You can contact your card issuer by phone or online to ask it to increase your credit limit. To show that you're responsible, make sure that you always pay your credit card bill on time. While making at least the minimum monthly payment is fine, it's better to pay more, if possible, to avoid paying interest.
You'll then want to contact your credit card issuer by calling the number on the back of your card. There may even be a form that you can fill out in your online account. Be sure to point out any positive life changes, such as a recent increase in income, as this helps improve your odds of getting a credit limit increase.
A credit limit increase can be a good thing, but make sure that you're being responsible with your spending. Keep an eye on your limit and only spend what you can afford. This way, you won't get into credit card debt. If you're responsible with your finances, a credit limit increase can be a huge benefit.
This article was written by Natasha Gabrielle from The Motley Fool and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to email@example.com.