Do you remember the day you got your first credit card? Chances are good that it came with a low limit. And while that was maybe helpful for small purchases — a bill here, a lunch there — over time you likely reached a point where you wondered how to increase that credit card limit.
A credit limit increase can open you up to new opportunities and expand your buying power as a consumer, but it also comes with a few risks.
How to increase your credit card limit
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Benefits of a higher credit limit
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More spending power
Say, for example, you use your credit card to pay for most of your household expenses so that you can reap rewards. Maybe your needs have outstripped what your credit card limit allows, even though you’re well within your budget to up that limit. In that case, applying for and receiving a higher credit limit could make for some extra breathing room and flexibility each month as your household expenses fluctuate.
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Allows for a large purchase to be made
The second benefit is that it allows for larger one-time purchases to be made. You may find yourself faced with an unexpected or emergency-related expense that you can’t cover right away. A higher credit limit makes it less likely that you’ll get stuck at the counter unable to pay for your item.
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Can improve your credit utilization ratio
Lastly, and most importantly, a higher credit limit can help you build a better credit score by improving your credit utilization ratio (the amount of credit you’ve used compared with your available credit). It’s generally accepted that a credit utilization ratio below 30% is good for your credit. So, for example, if your limit is $10,000, your ideal credit card balance at any given time would be $3,000 or less. By raising your available credit, you lower your credit utilization rate, which can give your overall score a boost.
Drawbacks to a higher credit limit
For every positive that a higher credit limit provides, there are some equally problematic drawbacks.
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Easier to lose track of spending
A higher credit limit makes it easier for your spending to spiral. If you’re not on top of your budget, a higher credit limit can give you an illusion of safety. As a result, if your credit utilization rate gets too high, where you’re spending close to your limit every chance you get, then your credit score can actually go down.
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More money at stake in case of fraud
While all credit card issuers have anti-fraud prevention measures in place and a reimbursement process for if your credit card is stolen, a lower limit can actually minimize the risk associated with fraudulent charges. A $500 false charge will be a lot less nerve-wracking than a $5,000 one.
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Can negatively impact other borrowing options
A higher credit limit means increased risk, which can also impact the way borrowers other than your issuer view your credit health. This is why it’s important to regularly check in on your credit score so that you can make sound borrowing decisions and be aware of how decisions now can impact options later.
How to increase your credit limit
There are multiple ways to increase your credit card limit.
- Apply for an increase via your online banking
- Phone your lender
- Visit a branch
- Look out for pre-approved increases that you receive by mail (keep in mind that you do have to accept them in order for them to take effect)
- Apply for a new credit card. For example, that old student card you’ve been carrying for a decade may have a lower limit than a newer option.
What to do if you're denied a credit card limit increase
If you’re denied a credit card increase, it’s a good idea to check your credit report and make sure there are no issues with incorrect information. If you’re denied due to your score alone, your next step is to rebuild your credit score. Most lenders suggest waiting a few months before applying again.
When are you eligible for an increased credit line?
There are no hard and fast eligibility requirements for an increased credit limit, but there are some general guidelines.
Equifax, one of the main credit reporting bureaus in Canada tasked with tracking your credit score, recommends waiting somewhere on the scale of months rather than weeks before applying for an increase. This waiting period allows you to build up your reputation with your credit card issuer and prove your capability.
What to do before requesting a credit line increase
Before asking for a credit limit increase, make sure it’s within your financial means to pay back that amount if you absolutely had to spend to your limit.
Also, check in with yourself about why you’re asking for a higher limit. Is this a nice-to-have? An attempt at keeping-up-with-the-Jones’? Or will this actually benefit your financial future?
The last step before you apply should be to check your credit score and credit report to make sure your view of your credit history is similar to that of your issuer.
What happens if you go over your credit limit?
Going over your credit limit can have a number of negative effects. The first one is that your transaction is likely to be declined. Beyond the usual embarrassment, a credit card company can charge you a fee if you go above your limit — much like an overdraft fee for a chequing account.
This can reflect negatively in the eyes of your lender and also may leave you with an additional charge at the end of the month that you might not have budgeted for. In order to protect yourself, the Government of Canada recommends that you read your credit card agreement cover to cover, as some lenders may treat you going over your limit differently.
Should I accept a pre-approved credit limit increase?
Being offered or receiving a credit card limit increase is a sign that you’ve been meeting your credit obligations and that your credit card issuer views you as being in good standing.
You should only accept a pre-approved credit limit increase if you feel that it’s in your best interest. For example, if you know that you’re likely to spend to your limit, then upping that amount — even if you can afford to do so — may not be wise. On the other hand, if you’re a person who values the wiggle room, like for emergency situations, then accepting might be a wise option. Remember, though: just because the money is accessible doesn’t mean you have to use it.
Should I increase my credit limit or get a new credit card?
It can be tempting to add to your stack of plastic rather than asking for a limit increase.
According to Equifax, if you have multiple credit cards then an increase can be best. However, if you’re relying on only one credit card or line of credit, then an additional card can be a good idea as it broadens the number of options you have in order to pay your expenses and proves to your lender that you’re responsible with multiple forms of credit.
Will increasing my credit limit impact my credit score?
Increasing your credit limit is likely to impact your credit score, especially if you continually spend outside of your means.
If you have a high credit utilization ratio, meaning you’re leveraging a lot of debt each month, then your score can decrease. On the other hand, if you’re spending within your means, then you’ll lower your utilization ratio and as a result, your credit score can actually increase.
Keep in mind that applying for a credit card limit increase, much like applying for a new credit card, can have a short-term impact on your credit score as your creditor assesses whether you are eligible. This varies from creditor to creditor, though. Some may consider it a soft inquiry; others may consider it a hard inquiry.
John Loeppky
Frequently asked questions
Once you’ve applied to increase your credit card limit, much like when you applied for your credit card initially, the response should come back within a few minutes. Using an online portal, those times can be cut to just a few seconds.
If you have good credit, a high enough income, and are spending within your means then a credit limit increase isn’t particularly difficult to obtain. However, if you have poor credit then you’ll need to take steps now to better your chances in the future.
Credit cards issuers may, from time to time, offer automatic increases to customers who they see as being in good standing. In Canada, this is usually done through a mailed letter or an email advising you that you’re eligible for an automated increase. If you want to reverse an automatically applied credit limit increase, contact your issuer as soon as possible.
