Does A Credit Card Company Increasing Your Limit Affect Your Credit Rating

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Yous may exist aware that your credit card company can penalize you lot for late payments. Simply did you know that your issuer will also reward your responsible credit card behavior?

Nosotros're not talking about earning bonus rewards or extra perks— instead, credit menu issuers reward cardholders for their on-fourth dimension payments with a credit limit increase. It'due south often automatic, and yous may not be notified that it'south happening. But it'll amend your credit score every bit long every bit all other factors remain the aforementioned. That means you lot shouldn't start spending more than or otherwise alter your payment habits.

Here's everything yous need to know nearly an automatic credit limit increase, plus some tips on how to know when it'due south time to upgrade to a better card.

What Is a Credit Limit?

"A credit limit is the maximum amount a bill of fare issuer has lent a cardholder once they're approved for a credit card," says Nathan Grant, senior credit industry analyst at Credit Card Insider, a credit card review site. In other words, it'south the nearly you'll be able to charge on your menu earlier you're required to pay down the residue.

Your credit limit will accept a meaning event on your credit score due to what's known as your credit utilization ratio. That'due south the percentage of your bachelor credit that you are using at any given time and is calculated past dividing your full outstanding rest past your total credit limit. "Unremarkably, the higher the credit limit, the improve your credit score," says Jessica Weaver, CFP, CDFA, CFS, and author of "Confessions of a Money Queen." That's because if your credit limit increases and your balance stays the same, yous'll be using a lower per centum of your available credit, which will positively affect your credit score.

Why Did Your Credit Limit Increase Automatically?

If yous find that you've received a credit limit increment without having requested one, know that this is a common occurrence that will most likely assistance you lot, not hurt you.

"Sometimes issuers will automatically grant cardholders that are in good continuing a college credit limit," says Grant. Weaver notes that credit card companies similar to give credit limit increases to people who use their cards frequently but also make their payments on time. In that location are a few reasons your credit card issuer may take given you an increase:

You've consistently made your payments on time
Y'all reported an income increase
You've been a cardholder for a long time

Each issuer has unlike criteria for when an automatic credit limit increase will occur. Only if it happens to you, you should pat yourself on the back for maintaining a positive payment history. With your new credit limit, yous can savor more flexibility in spending with your credit card, and if yous go along your balances the aforementioned every bit earlier, you'll likely besides see your credit score increase.

Do You Have to Spend More than?

Your credit limit tells you how much you lot can spend, non how much yous should spend. "Merely because you have a higher credit limit doesn't mean you should spend more than. You have more than spending power, but that doesn't mean y'all should be racking up more debt," says Grant. In fact, you should focus on keeping your balances low, ideally nether 30% of your credit limit. Yet, Weaver adds, the higher credit limit "is in that location as a resource." That means you could use information technology for an emergency expense or a old big purchase that you have a program to pay off, instead of taking out a dissever loan. However, having an emergency fund on hand or holding off on a big purchase until yous can pay for it in cash is withal preferable to carrying a balance on your card in these situations.

In general, though, "You should be able to pay off your credit card with the coin that's in your bank account," Weaver says. That means you should have a budget and never spend more than you can afford to pay off during the grace period. If you starting time carrying a balance, information technology'll negatively impact your credit utilization ratio, and loftier credit carte APRs hateful interest charges can apace add together up as well.

Will Your APR Change?

Your APR represents the total annual cost, including involvement and fees, that you lot'll pay to deport a residuum on your card. Many credit card issuers charge penalisation APRs, then if yous miss a payment, you might run into your Apr increment. But an automatic credit limit increase should not have any effect on your Apr. "Issuers will not alter your Apr because of that factor," says Grant, who notes that y'all would demand to negotiate with your issuer separately if yous wanted to get a lower rate.

Can You Request a Higher Credit Limit?

Even if your issuer doesn't offering automatic credit line increases, you might nonetheless want to request a higher credit limit if you've been making payments on time for a while or had an increment in your income. The procedure of requesting a college credit limit varies past issuer. "Some cards will have a asking link right in your online account or the app itself. Others might take you call customer service," says Grant. Information technology never hurts to endeavor to get a higher limit, and if your credit bill of fare company approves the increment, you'll likely encounter a boost to your credit score.

Pro Tip

Some credit card issuers allow you request a higher credit limit online. If yous've made consistent, on-fourth dimension payments for some time, or have seen an improvement in your credit score, give this option a effort.

Are You Ready for a Menu Upgrade?

An automatic credit limit increase is a sign of a consequent payment history. If you've besides kept your debt balances low in add-on to making on-time payments, then you may have seen your credit score better over time. That means you could be ready for a better credit bill of fare if yous started off with a educatee card or one designed for bad credit applicants. Weaver recommends a credit score of 700 as a expert benchmark to aim for before applying for a rewards card.

If your electric current credit card doesn't match up with your lifestyle, that's another sign it's time to use for a new one. "If you're starting to utilize your credit card more than and more, you want to look at what the rewards are on the credit card," says Weaver. Aim to choose a rewards credit carte that offers rewards for the categories in which you spend the nigh. Besides pay attending to other bonuses and perks, and choose the card you'll get the most utilize out of. For instance, if y'all're planning a trip away, you may want a travel rewards card with no foreign transaction fees.

There'southward no magic moment when you should apply for a new card, but you can continuously monitor your credit score and review available credit card offers. If you encounter your score rise above 700 and you discover a card that offers more bang for your buck, it's probably a skillful thought to apply. Just remember that fifty-fifty afterward you become a new card, you should probably still go on your erstwhile carte du jour open up to benefit from the credit history on that account, unless the card charges an annual fee that's no longer worth it.