Does Requesting A Credit Increase Affect Credit Score?

Is It Good or Bad to Request a Credit Limit Increase?

First of all, many people's financial life revolves heavily on credit score. It affects other facets of life like rental approval, vehicle loan interest rates, and other elements. You must therefore be somewhat careful with your actions to avoid reducing your score. Many customers then wonder: If I apply for a credit limit increase on one of their credit cards, will it lower my credit score?

The quick response is to say no; the mere act of requesting a greater limit won't lower your score. Your score will suffer, however, if your increased limit results in more credit card debt. Here is a deeper look at how credit limit increase requests interact with your credit score and what you can do to wind up on top.

That is why hard inquiries will not affect your credit score much as they show that you are actively seeking credit.

If you apply for an increase in the credit limit, the credit card company will pull your credit report to evaluate your financial standing before approving or rejecting your application. While hard inquiries do have the ability to harm one’s credit score, the effect is generally minimal (less than a 5-point decline) and fleeting.

Here are a few reasons why hard inquiries for a credit limit increase pose little risk to your score.

• Poe credit scoring models do understand rate shopping. Inquiries for auto loans, mortgages, and student loans made within a specified period will be grouped and counted as one to assist consumers who are comparing rates. Both the credit limit increase requests work similarly and do not lead the credit card to be listed separately.
• It should however be noted that not all hard inquiries are the same. Applying for new credit does hurt your score compared to requesting more credit from the existing credit provider because the latter signifies a healthy and ongoing relationship.
• Newer credit contributes a bigger part of your score. In general, credit scoring models focus more on the recent past than on the past, which is best illustrated by the following. If your accounts have a good and long history of utilization and repayment, new inquiries will not be able to counter this legacy.

Higher Credit Limits Assist in Enhancing Your Utilization Ratio

Therefore, applying for a higher limit does not impact your credit score directly; however, the activities that follow once the higher limit has been granted will affect it if not well managed. First, having card balances that are close to or equal to the credit limit will increase the credit utilization ratio and thus, lower your score.

Credit utilization is the measure of the ratio of the amount of credit that you currently have to the total amount of credit limit you have. It is further advisable to maintain a saturation level below 30% on every card and overall on all your cards. The lower the better for your score.

Your utilization ratio drops when your credit limits are raised even when you are still using the same charging behavior. This can increase your credit score in the long run. However, if you react by increasing the spending, and balance, from month to month, a higher limit may be a disaster for your score.

How to Request an Increase in Your Credit Limit and Not Affect Your Score?

If you have upcoming large expenses and want the flexibility of a higher limit, here are some steps you can take to protect your credit.

To support this, clear up balances before submitting a request for an increase. This will make sure that even when the limits are high, your utilization ratio remains small. When asking for goods, services, or materials, do not ask for more than you require in a bid to avoid making unnecessary purchases. Perhaps you can start by trying to perform a soft credit check with your credit card company. Soft inquiries do not involve a hard credit check and appear only on your credit report instead of the lenders’ reports, therefore, they cannot influence your score in any way. If that’s the case, you may choose whether to go ahead with a standard request which leads to a hard inquiry. Plan. Because the higher limits can lure you into making more unnecessary purchases, create a spending plan that incorporates the increase and ensures that you do not transgress the set limits. Be cautious in monitoring your balances and usage each month. Do not incur other expenses on that card if you want to have the most positive impact on your credit score.

The Takeaway

As a general rule, the mere fact of asking for an increase in your credit limit should not alone have any adverse impact on your credit score most of the time. It is minor and should not be a big issue after a few months of hard inquiries. However, what you do once you get this higher limit counts. However, it must be taken with a pinch of salt not to fall for the trap of a high available credit line. Therefore, as long as you use the cards properly, the higher limit will enhance your utilization ratio and credit reputation. It is also recommended to often read your credit report and find out how your daily decisions regarding credit cards affect your credit rating.

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