Credit 101: How to increase your credit limit

Credit cards offer a range of benefits, including cash back, rewards points, and many other useful perks. They can also help someone with an inconsistent income manage their daily expenses while they await their next paycheck to pay off their balance.

One factor that can dampen these benefits is a low credit limit. With a small credit limit, you may be unable to maximize your rewards by handling all your monthly expenses with that account. Fortunately, you can request a higher credit limit after being a cardholder for some time.

Understanding how to increase your credit score is important, and we’ll outline the process below. But first, let’s review a rundown on what a credit limit is and why it’s so important.

Understanding your credit limit and why it matters

Before diving into how to increase your credit limit, you need to understand what your credit limit is and why it’s so important in your financial life.

When you apply for a credit card and get approved, the credit card issuer will toss a lot of numbers your way. Interest rates, transaction fees, cash advance fees, late fees, minimum payment amounts, and more. In this list of numbers, you’ll also find your credit limit — the maximum amount of debt the credit card issuer allows you to carry on the account.

For example, let’s say you have a $2,000 credit limit and have already charged $1,000 on the card. If you try to charge more than $1,000 to the account before paying down your balance, the credit card issuer will decline the transaction. Some credit card companies have an over-the-limit grace amount that’ll allow you to exceed the credit limit temporarily without fees, but not all cards have this feature.

It’s easy to confuse your credit limit with your available credit. While your credit limit is the maximum amount you can charge to your account, your available credit is your credit limit minus your credit card balance. So, if you have a $3,000 credit limit and a $1,000 balance, you have $2,000 in available credit.

So, what’s so important about a credit limit? It has an effect on your credit score. Your FICO credit score has five components, and one is called “amounts owed.” This component accounts for 30% of your credit score and includes a variable called your credit utilization ratio (or credit utilization rate), which is your credit card balance divided by your credit limit and then expressed as a percentage.

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For example, if you have a $2,000 credit limit and a $1,000 credit card balance, you have a 50% credit utilization ratio ($1,000 / $2,000 = 0.50, or 50%).

Experts recommend maintaining a credit utilization ratio of 30% or less, and the closer to 0% you get, the more positively it impacts your credit score. However, the higher your credit utilization rate, the more negatively it may affect your credit score. The only way to lower your credit utilization ratio is to pay down your credit card balances or increase your credit limit.

This brings us full circle to learning how to increase your credit limit. Let’s dig in.

How to increase your credit limit

At times, your credit card company will review your account history and may even ask you to update your income information. Based on these details, they may raise your credit limit automatically. But what if you want to request an increase? 

The act of requesting a credit limit increase, which we’ll get to soon, is a piece of cake, but the path to getting approved for that increase takes a little more work to navigate. Here’s how to increase your credit limit.

Establish a good credit history

When you ask for a higher credit limit, the credit card company will check out several things. First, it’ll see if anything changed in your life and personal finances to warrant a credit line increase. This can include increased annual income, employment status, marriage, reduced rent or mortgage costs, and more. Second, it will review your account’s credit usage and payment history.

Finally, the company will perform a hard inquiry — sometimes referred to as a hard pull — on your credit report to review your full credit history from the three credit bureaus (Equifax, Experian, and TransUnion). The credit card company will check your balance and payment history on other credit cards to see if you’re managing those accounts well. It also uses this information to see if your credit history has improved recently and warrants a higher credit line.

This is why it’s important to establish a good credit history. Let’s look at the key ways you can do this.

Make on-time payments

Payment history accounts for 35% of your FICO credit score, making it the most important factor. To establish good credit history, make at least the minimum monthly payments on all your accounts by the due date or within 30 days of the due date to avoid a late payment mark on your credit report.

The goal, of course, is to pay off the entire credit card statement balance each month to avoid interest charges. However, if you can’t, at least make the minimum payment to avoid late fees and potential missed payment marks.

A great way to ensure you don’t miss a payment is to use the automatic-payment feature most lenders offer. This automatically debits your bank account for the amount you authorize and applies it to your account. If your lender doesn’t offer this, you can set up an automatic bill pay through your checking account.

And remember that this doesn’t only apply to credit cards. Payment histories from almost all types of debts end up on your credit report. Other bills, such as utilities and rent, may not show on your payment history now, but they can show as collection accounts on your credit file and negatively impact your payment history if you fail to pay them.

Exercise responsible credit card use

A credit card account can be helpful, as many offer rewards like cash back, points, and other valuable perks, so it’s OK to have and use them. The key is to use them responsibly by not charging more than you can afford. 

Also, try to keep your total credit card debt as low as possible — a 30% credit utilization rate at the highest but preferably lower to show you’re not at risk for overspending.

Some credit cards allow you to set alerts to let you know when you reach a certain balance. These alerts may be useful in helping you keep track of your spending so you can keep your credit card balances under the 30% mark and within your monthly budget.

Pay down your other debt

Your credit card company will look at your credit report and debt when you request an increased credit limit. It wants to ensure you’re in a good financial situation before giving you access to more funds. 

If you have high balances on other credit cards or a high debt-to-income (DTI) ratio — your monthly minimum debt payments relative to your monthly income — it may view you as a higher risk and decline your credit increase, even if you have a good credit score.

For example, if you have a $350 car payment, a $50 minimum credit card payment, a $75 minimum credit card payment, and a $500 student loan payment, your total debt payments would be $975. If you earn $3,000 per month before taxes, your DTI ratio would be 32.5% ($975 / $3,000 = 0.325, or 32.5%).

While there’s no concrete DTI rule for credit cards, the general rule of thumb is:

• 35% or lower: Generally viewed as a favorable DTI

• 36 to 49%: Generally acceptable, but some lenders may want to see you improve it

• 50% or higher: Generally viewed as too high for most lenders

If your DTI is near 50% or higher, consider paying down some of that debt before applying for a credit increase. This will help boost your odds of getting approved.

Request a credit limit increase

With a solid credit history established and your DTI looking good, it’s time to request your credit line increase. You can do this online or over the phone. Let’s quickly review each one.

How to increase your credit limit online

Requesting a credit limit increase online is likely the easiest path to take. Simply log on to your credit card account online or in the mobile app and find the “Request Increased Credit Limit” link. Every credit card website and app will put this in a different area, but a few common places to check would be “Account Settings” or “Account Services.” You can also search the help section if you can’t find it.

Once you locate it, your credit card company will ask a few basic questions, typically about your income, rent or mortgage payment, and employment status. It’ll then perform a credit inquiry and let you know the results.

You’ll often get a decision and your new credit limit — if approved — immediately, but the credit card company sometimes needs a few days to review your information.

How to increase your credit limit over the phone

Requesting a higher credit limit over the phone is also pretty simple.

Find the credit card customer service number on the back of your card and call it. When connected, listen to all the prompts and see if it mentions anything about credit limit increases. If not, you can just press the general customer or card services button.

When a customer service representative comes to the phone, let them know you’d like to apply for a credit limit increase. They will ask you many of the same questions you’d get in the online systems, then they’ll let you know if you’re approved. If you are, they’ll provide you with your new credit limit.

Increasing your credit limit can help in a few ways

Learning how to increase your credit limit gives you access to more credit on your credit card. When used responsibly, you can use this extra available credit to earn more rewards and lower your credit utilization rate, which may improve your credit score.

However, you must first establish a good reputation with your credit card company and good credit overall. You can do the latter through responsible credit card use, on-time payments, and a low DTI.

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