Do Credit Increases Affect Credit Score?

This may sound exciting – having a higher credit limit means that one has more buying capacity and can use that particular card to make more extensive purchases. However, you should know how CLI might affect your credit before you apply for one. This is what you should expect concerning credit limit and credit score.

The Short Answer

By and large, a credit limit increase is not likely to be detrimental to your credit score. On the contrary, it might even assist. The only drawback of getting a higher limit is if you frequently use your credit card, and therefore, as long as you don’t incur larger credit card debts, it shows that your lender has confidence in you to handle credit. The only thing you should avoid is having them charge more on your card once your limit has been increased. Do not change the spending pattern and remain as it is.

Credit utilization ratio

Typically a crucial calculation of credit score, which characterizes the proportion between the amount of credit that's utilized and the whole sum of available credit. This implies exactly the rate of the credit accessible to you and the credit you have right now. If you have a credit limit of $ 10,000 on all cards and owe $ 2,000, then your credit utilization rate is 20%. Generally, it is advisable not to exceed a 30% credit utilization rate.

Once you get affirmed for a credit restrain increment your add up to credit restrain is expanded. For occasion, when the constraint is expanded from $10,000 to $15,000. In case your adjustment remained at $2,000, at that point your utilization proportion would go down from 20% to 13% – and the lower the way better as far as your credit score is concerned.

But, there's a negative side to this. If you'll be able to charge more since of that additional $5,000 of credit merely have presently, at that point your proportion would be higher and it seems to drag down your score in case it is over 30%.

Credit mix

Furthermore influencing your rating is the sort and range of credit shown on your report. Lenders prefer to see that the borrower can manage many kinds of accounts properly, they include installment loans, mortgages, and revolving accounts like credit cards. If you simply have credit card accounts and no other kind of loans, for example, boosting your credit limit will help much to improve your credit mix by establishing your ability to handle a larger credit limit.

The average age of accounts

Another component of your FICO or VantageScore credit score is the length of your credit history. This means that the longer the credit accounts have been open, the better the credit score.

If you apply for a new credit card to enjoy some offers or bonuses, then the account reduces the total length of your credit history. However, applying for more credit on an existing card keeps your average age as is. Hence, increasing your credit limit means that you have a high limit and the length of your payment history is not affected.

New credit inquiries

When you apply for credit, for instance through a credit card company or by requesting an increase in your credit limit, this will lead to a hard pull on your credit report. New inquiries within a short period will also lower your score even if it is only for a short while.

However, letters of inquiry regarding limit increase requests are often conducted as soft pulls. Soft inquiries do not impact your credit score in the same way hard checks do. Consequently, obtaining a CLI won’t reduce your score by requesting another risky credit check.

How to Manage a Credit Limit Increase

While a higher credit limit itself doesn't damage your credit, be careful about how you use that newly available credit:

Do not think that it is okay to spend more just because your limit has been raised. Do not deviate from the regular budgets and spending plans that have been in place before the COVID-19 pandemic started.
Look at your new credit utilization ratio and make sure it is not more than 30% at the very least. The lower the better!
To be on the safe side you can set account alerts to receive a notification should the balance get close to or equal a certain amount for example 50% of your limit.
This can be done by making sure to pay the full balance on the credit card each month if possible or by paying more than the minimum.
It is recommended to check your credit report periodically to identify such issues.
Perhaps, it is wiser to have a wide limit spread across various cards as opposed to having a large limit on a single card.

The Takeaway

Thus, a credit limit increase is a good thing if it is properly managed and used efficiently and effectively. So long as you are not spending recklessly knowing fully well that your credit limit has been increased, then it will boost your credit score because of the reduction in your utilization ratio as well as the addition of the new credit type. Be careful though to not overspend, newfound available credit can easily become a bad thing if you don’t have the spending restraint.

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