Does Asking For Credit Increase Affect Score?
Is It Harmful to Ask for a Credit Limit Increase and Does It Impact On Your Credit Score?
It is advantageous to have a higher credit limit since it means that you have more purchasing power with your credit card. However, it is an important question for some cardholders, what happens to their credit score when they request an increase? This article also looks at how credit limit increase requests impact your score and other aspects to contemplate before seeking more credit.
The Difference between a Hard and Soft Credit Check
The distinction between a soft credit check and a hard credit check should be the first item discussed. When lenders review your credit report to assess you for credit—including credit cards, auto loans, and mortgages among others—hard inquiries show up on your credit record. This kind of question could somewhat lower your credit score.
On the other hand, soft inquiries are credit checks with absolutely little effect on the credit score. When you contact any of the credit card companies for a credit limit increase, some of them will do a soft credit check—that is, they are evaluating your creditworthiness with them but will not get your credit report. This implies that asking for a higher limit should not in any way lower your score.
On the other hand, the issuer could do a hard inquiry should they be unable to determine whether to provide extra credit to you depending only on the soft inquiry. Therefore, even if you should simply ask for a soft inquiry when seeking a credit limit increase, you cannot guarantee that it will not become a hard inquiry.
Other Effects On Your Credit Rating
Aside from the type of credit check initiated, there are other factors to consider regarding how a higher credit limit could impact your score.
Lower Credit Utilization Ratio
This ratio measures the proportion of your balance against your credit limit. As for the optimal proportion, it is suggested to keep it below 30 percent, though the lower the ratio the better for your score.
A higher limit enables you to incur more expenses but below 30 percent and that may help you to improve your score later. Just ensure that you do not go on a shopping spree merely because your credit limit has just been increased.
Length of Credit History
This factor gives a measure of the amount of time for which one has been engaging in active credit usage. If to get a higher limit you have to take a new card it will reduce your length of credit history and can slightly affect the score negatively at first.
However, holding that card long-term lets your history length increase once more while reaping the rewards of the higher credit limit. Thus, it should not be negative as time passes.
Prevents Card Limits
There is one way how a person can quickly undo all the good work they have done and that is by maxing out their credit cards. For this reason, the higher limit is beneficial because if you do have to make a large purchase you will not go over the limit on your card. It is preferable to maintain your balance well under the limit at all times.
When Not to Request an Increase
Finally, while moderate use of higher limits when needed can benefit your credit scores, there are times when a request makes less sense.
- You have some recent late payments on the card – credit card issuers only increase credit limits for dependable clients.
- You plan to apply for other new credit soon – New credit checks could be seen as credit-hungry behavior by other lenders.
- Your income has decreased recently - There is a chance that you may not qualify and the inquiry itself may be pointless.
The Bottom Line
In most cases, when applying for an increase in credit limit, there should be no hard credit check done on the applicant’s credit file. In the long run, the responsible employment of that higher limit to ensure the utilization of credit is minimal can be of value to credit scoring. However, if the card issuer makes a hard inquiry, then there will be a slight and temporary decrease. Do not request a higher credit limit unless the circumstances require it.
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