Thinking about requesting a credit line increase from your card issuer? Before you request a credit line increase, you should understand how it might affect your credit score.
Key Points:
- Whether a failed credit line increase application hurts your credit score depends on whether your creditor uses a hard or soft inquiry.
- Before you apply for a credit limit increase, make sure you understand the possible implications.
- Your credit card issuer denies your application if it finds you unworthy of more credit.
Whether it impacts your credit score or not depends entirely on the actions your credit card issuer takes in response to your request.
When you request a credit line increase, your credit card issuer seeks to establish whether you are worthy of the extra credit. The issuer does so by reviewing your credit report, credit card usage, income records, etc. The issuer can pull your credit report through a soft inquiry or a hard one.
Your credit card issuer uses your credit report to determine whether
you are worthy of a credit extension.
If the issuer uses a soft inquiry, your credit score will not suffer.
If your credit card issuer resorts to a hard inquiry, it inflicts a mark on your credit report that stays on your record for two years. It may also hurt your credit score.
The effects of a single hard inquiry on your credit score are temporary and do not inflict significant damage. If you have recently made other hard inquiries and add another one to the tally, the damage will be more significant and lasting.
Racking up several hard inquiries over a short period tells credit bureaus that you can’t handle debt responsibly.
Ask Your Credit Card Issuer What Your Credit Limit Increase Entails
Different issuers handle such requests differently. Some of them use hard inquiries, others settle for soft ones. Some share this information online, but the only way to be sure that you’re not setting yourself up for a credit score hit is to ask.
While you’re at it, you can also ask about your chances to have your request approved. If you realize that it’s not likely you will succeed with your application, you are better off postponing the issue until you improve your creditworthiness.
Reasons Your Credit Card Issuer May Deny Your Request
Your credit card issuer will deny your request for a credit line increase if it appears you are unlikely to handle the additional debt well. This decision is based, in part, on your credit report. Your request may be denied if:
- Your credit score is too low.
- You barely use your credit card or your credit card account is too new.
- You only make minimum payments to your credit card account.
- You don’t have enough income.
- You have recently missed payments on your accounts.
- You recently got a credit line increase.
The credit card issuer won’t always flatly deny your request. You may receive a counteroffer
for a smaller limit increase.
If your request is denied, the company will send you an adverse action letter, which explains why your application for more credit was turned down. You can use this information to improve your position and perhaps try again later.
If you don’t understand why your creditor denies your request, do not hesitate to ask. Sometimes, credit card issuers can offer technical solutions to your problem, like consolidating available credit among your different cards.
Other Ways in Which a Credit Line Increase Can Impact Your Credit Score
If your creditor approves your request for a credit line increase, it will alter your credit utilization rate.
With a higher credit limit, you have more available credit. If your balance remains unchanged, your utilization ratio will be lower, improving your credit score.
With more available credit come temptations, however, and if you “celebrate” your successful application by spending more, you defeat the advantages of your higher limit.
Let’s consider the following example. The total credit limit across all your credit cards is $30,000. You are currently using $5,000 of this for a utilization ratio of 16.6%. You increase your credit limit to $40,000. Provided your combined balances remain unchanged, you’ll have lowered your credit utilization to 12.5%. If you increase your balances to $10,000, your credit utilization ratio will go to 25%.
If you can barely make minimum payments on your accounts and find it impossible to get more credit, it is time to seek credit card help. Call 866-481-1597 to speak to a Certified Debt Specialist today and get a free savings estimate.
The information provided is for informational purposes only and is not intended to provide financial advice. ClearOne Advantage is not a lender, credit repair or consumer credit counseling company. ClearOne Advantage doesn’t provide lending or credit advice. Please consult a certified financial advisor for individual credit and lending advice.
