Do Credit Line Increase Affect Credit Score?

Does taking an increase in your credit line have an impact on your credit rating?

It may seem like a positive thing if you apply for an increase in the credit limit on your credit card. Besides, when there is a higher limit, it means that you have more leverage and freedom with that particular credit card. However, some people fear that they may be disadvantageous when they get a credit card limit increase. Is this something that should be of concern?

Credit Line Increase: What Is It?

Credit line increase is a process that involves your credit card firm deciding to raise the ceiling that you qualify to spend on the account. You can ask for an increase on your own or the issuer will review your account on its own at some point and decide to raise your limit. In either case, once your credit line has been increased, it allows you to spend more on that specific card each month. The change in your credit card’s credit limit has been implemented and the new one is effective immediately.

Why Do Credit Card Companies Increase Credit Limits?

There are primarily a few reasons why issuers increase the customers’ credit limit. First, if one has had a long positive relationship with the card and has been paying it on time and using it responsibly, the company will at some point increase the limit periodically automatically. It’s advantageous to both of them and you. They would like to foster a loyal client base, and a higher credit limit makes you spend more on that particular card.

You may also ask for a credit line increase on your own after using the card creditfully for some time. Some of the reasons could include the need to make a one-time large important purchase that cannot be afforded within the current credit limit or the need to increase the limit in a bid to reduce the credit utilization ratio. This is because credit card companies have an interest in seeing reasonable limit increase requests for good long-term customers, whose spending and loyalty can be sustained with the card.

Does the rise in value harm the credit score?

The short answer is no, credit line increases do not reduce your credit score it does not affect it in any way at all. If you conduct yourself properly after the credit limit has been increased, the score might even remain unchanged or improve slightly. That is why there are a few reasons.

Second, FICO and VantageScore, the two major credit-scoring companies, don’t include your credit limits or your utilization in credit score calculation at all. Thus, when you get a new limit increased, such a new limit is not taken into account or applied to your scores at all, straight after the limit boost.

Furthermore, although, higher utilization does lower scores and vice versa the scoring algorithms cannot know that your ratio went down because your limit was increased versus you paying down balances. In scoring, only the final number is of importance. Thus, if your newly allotted $6,000 credit limit reduces your previous $2,000 balance from 40% to 30% utilization, to the credit scores, you’ve only had 30% utilization hence better credit.

How Your Credits Interact?

Loading it with more credit is not as important as how you are going to manage it effectively today. Therefore, it is clear that the higher limit on its own does not adversely affect your credit, but charging up to the limit and then defaulting on your payment will negatively impact your scores. The increase also lets you possibly put yourself further into credit risk if not used properly.

But, if used more responsibly and in a moderate amount, more available credit can work to your advantage in building your credit report over time. Furthermore, since credit card limits and the number of credit cards, you have impacted your scores, another higher-limit card shows you are capable of handling more credit. This way, just ensure that you do not overspend for other items because more room has been created in your limit.

Strategies for handling an increased credit line

If you receive a new higher card limit, here are some tips for handling it to avoid negative credit impacts.

• Do not begin to splurge because of higher temporary income for a period. Do not go for loans with high interest that are hard for you to repay at the end of every month.
• Always make at least the minimum payment of the statement balance by the end of the month. Use account alerts in case of necessity to prevent the failure of payment and connected penalties.
• Maintain the charges low and the credit utilization less than 30% and if possible below 10% as it has a positive impact on the credit.
• Since a higher limit aids in decreasing its usage, one could start charging regular monthly bills which are usually debited from the checking account to the card and then repay in full.
• You can also ask your issuer to dial back limit increases by those amounts if a big one makes you uncomfortable about overspending.

The Takeaway

The act of getting credit line increases itself does not reduce your credit scores, though a proper utilization of such a line of credit can lead to a better credit utilization ratio in the long run. The only caution that you should exercise when an account has more open credit room is to be careful. Only if you learn to make your fairly and wisely your expenses and do not miss any monthly payments, you should not have any problems with your scores. Get security, or at least the feeling of it, plus additional buying capacity and options with your card following a higher limit.

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