Does Credit Increase Affect Credit Score?

Is Credit Limit Increase Good for Your Credit Rating?

The reason is, that a higher credit limit comes with more spending power and allows for larger purchases using that particular credit card. However, it is good to know how CLI can affect credit before you apply for one. Here is information about credit limits and how the credit limit increase impacts credit scores.

A credit limit increase refers to the act of raising the credit limit of a particular account by the credit provider.

A CLI, credit limit increase, refers to a situation where the total credit limit on your account is raised by your credit card company. For instance, if your credit limit is $5,000, the card issuer may upgrade it to $8,000. You would then have an additional $3000 for the other expenses such as buying things and making cash advances.

That brings us to the central question of the paper: why would card issuers offer CLIs?

Card companies, quite naturally, prefer that you use their cards more. They do this by extending your credit limit through which they make it easier for you to transact using that particular card. From their side, increasing your limit can help make customers more loyal and raise the fees/interest they obtain from the given account.

Of course, there are risks associated with CLI too – if the balance is frequently paid in installments, greater limits mean not only greater debt but higher interest charges as well.

The Short-Term Score Impact

When you get a raise in your credit line, your credit utilization ratio decreases because you are dividing the balance by a larger limit. This often leads to a temporary increase in your credit scores or your credit report.

For example:

Old limit: $5,000 Balance: $2,000 Utilization: 40%
New limit: $8,000 Balance: $2,000 New utilization: 25%

To clarify, the CLI also reduced your credit utilization ratio, which is one of the factors that make up 30% of a FICO® Score. It is better for your scores if people use them less.

However, this impact is most often temporary. Over time, your balance will eventually rise to meet your new limit, and you will again see your utilization ratio increase.

Some of the effects it may have on your credit report are as follows:

Even though a CLI can help get an initial increase in your score, it is up to you how to handle the card in the future. Here are a few key outcomes.

If your current utilization is low, then raising the ceiling will enable you to have even lower utilization and this will be a continuous positive effect.
If you can spend more and charge more over the credit, the score will rise temporarily or it will reduce.
If a CLI entices you to borrow more on your credit cards, that credit card balance will hurt your credit scores.

Also, though it does not impact credit scores directly, a higher limit provides one with more leverage to possibly mess up. The higher the limits set for spending, the more likely one is going to go over the set limit.

Strategies that can be Adopted When one is Given a Credit Limit Increase

If you get offered a CLI, here are some tips to leverage it responsibly.

Apply the new limit in a way that will ensure that the utilization is kept low on that particular credit card. Using a utilization factor higher than 30% can hurt scores.
Perhaps you should keep your spending the way it is. There you do not have to pay more simply because your limit has risen.
It is very important to be cautious about having a balance on the credit card. The higher limit leads to potentially higher interest charges.
Spread your payments over the cards you use to ensure none of the cards is charged above 30% of its credit limit.
Create account notifications to keep track of spending based on the new limit.
Always remember to pay your balances in full every month. Debt has its effects on credit, through having it one is likely to be affected.

In conclusion, it seems reasonable to state that while CLI is not always an appropriate request, it is not always an improper request either.

Some credit card companies allow the cardholder to apply for a credit limit increase but should the cardholder do so? It depends on your financial situation.

Upsides of Requesting a CLI

Can help in lowering the overall credit utilization of a card.
It also makes it easier to ensure that individual cards do not go above the recommended 30% limit.
Demonstrate to the issuer that you are engaging their card

Downsides of Requesting a CLI

Pulls a hard credit inquiry, which results in a slight decrease in score.
May try to lure you into spending more with that card
A higher limit therefore implies greater potential interest charges

Assess your situation honestly. If you have good control of spending and wish to reduce usage, then a CLI can be strategically beneficial. However, be careful – having more credit is never a good thing if you are predisposed to overspending.

The Bottom Line

Although a credit limit increase offer is good for increasing your credit score shortly, do not get preoccupied with wanting higher credit limits. The best thing that one can do is always to ensure that he or she pays bills on time and use credit cards at minimal times. Rather than revel in the improved credit limits, be more concerned with the responsible usage of credit.

Ready to boost your credit score? Call +1 888-804-0104 now for the best credit repair services near you! Our expert team is here to help you achieve financial freedom and improve your credit. Don't wait—get started today!