Finding out you've received a credit limit increase is exciting for anyone, especially for new credit card holders.
Whether you asked for the raise or it was simply granted to you by your card issuer, having more credit is both a blessing and a curse. While there is a lot to get excited about when your credit limit is raised, there is an equal amount to be wary of.
When Does a Bank Raise Your Credit Card Limit?
A credit limit increase isn’t just handed out to anyone for no good reason. If your credit has been raised, you must be doing something right, i.e, making all your payments on time.
“It is recognition for having done the right thing, for having used credit responsibly,” says Peter Neeves, former wealth manager and now head of CentSai’s financial adviser segment. “As humans, we tend to seek out gratification,” Neeves added.
Indeed, your card issuer has offered you a raise in credit because it’s expecting you to carry a balance on your card and it trusts you to pay it off on time. It wants to retain your business, and by increasing your credit as often as it sees fit, it can rely on you to stay put and not switch carriers.
If you have bad credit, don’t expect a surprise limit raise. Your card issuer is only doing this because it will provide mutual benefits for you both, and if it doesn’t trust you, you’re not getting more money from it soon.
If you believe you are worthy of a credit limit increase, it's possible to request it.
This is usually done online through your card issuer’s website or over the phone. Some banks like Chase and TD also have the option to submit a request via their apps.
Depending on your limit and credit score, your issuer will either approve the raise, counteroffer with an amount lower than you requested, or flat-out deny your request.
If you have a great credit score and the request is not all that much, say $500 or so, it may be granted straight away. If you make a bigger request, your card issuer will undertake a risk assessment. This may take some time.
If the assessment finds that, yes, you are a good customer, the issuer will raise your limit. But be careful — requesting a large increase will instigate an inspection of your credit report, so make sure you’re aware of your score and are not about to make any big purchases that could be affected by a sudden drop.
“The amount of credit line increase will vary based on income, credit history, and age. As cardholders age and all else remaining constant, their lines of credit on credit card increases. Of course, the fact that credit history is longer for an older cardholder plays a lot into this,” expert Ramona Cedeno says.
“Requesting a line of credit increase can negatively impact your credit score if the bank does a hard inquiry on your credit,” she says. “Banks sometimes [do a] often soft inquiry increase, but the line increase tends to be lower in that case. If maintaining your credit score at a certain level is crucial at that time, start with a soft inquiry increase.”
Timing is essential when it comes to credit card limit raises. If you’ve missed a couple of payments in the last few months and you’re not sure you can make bigger payments in future, don’t request a higher limit just for the sake of it. Be prepared to take on the responsibility of a new limit, financially and mentally.
How Quickly Does a Bank Raise a Credit Card Limit?
Many banks increase your credit without your even asking. This generally happens after about six months or so. Remember, your bank will gain from this, too, as it is hoping you will carry a balance.
After all, the average interest rate on a credit balance can go up to 18 percent per year. Meaning that for every $1,000 credit card balance, a bank can stand to earn $180 a year. Little wonder why most banks issue credit cards!
“Interest and fees that come from your pocket and go to theirs,” Neeves says.
The card issuer won't raise your limit for no reason.
It's also possible to request a higher limit, but this cannot be done for an amount of time, usually six months or so. You must build up a good relationship with your card issuer and prove that you are a reliable customer. This means that you never, ever miss your monthly bill.
Your card issuer won't raise your limit if it doesn’t believe you will be able to make payments. Plus, you must have some sort of proof that you have been capable of making payments in the past. If you're a new customer or have recently transferred banks, the chances of getting an increase right away are low.
Six months is usually a solid period to wait before asking for a credit limit raise. But if you're a responsible customer, you can apply within three to four months and most likely have the request approved.
Your credit utilization will make a big difference when it comes to approval or rejection of your request. The percentage of credit you should be using should be under 30 percent.
Once you make a request, the response is usually pretty quick, depending on your card issuer. For example, TD Bank states online that, “If your request is approved, or if you are approved for a lower amount than requested, your new credit limit will be reflected in your online banking profile within two business days from the date of your request.
“If your request is not approved, we will send you written confirmation of this decline by mail to the mailing address we have on file for you within seven to 10 business days from the date of your request.”
Remember your request also can be rejected. Again, the decision is not random and this will happen for a reason. If this does happen, it’s best to wait a couple of months before making another request. Take this time to check your credit score and see where you can make improvements. It may be wise to pull a report from all three bureaus using tools like MyFico. Build up credibility and make all payments on time before making your next request.
Pros and Cons of a Credit Line Increase
There are a lot of pros and cons to having your credit limit raised. The obvious pro is that you now have access to more money, which gives you greater financial freedom. But this is a double-edged sword. You need to be careful, especially if this is your first time getting your credit raised. It is very easy to get overexcited now that you have access to these new funds and overspend, but there will be major consequences if you spend beyond your means.
Expert Neeves puts it bluntly: “For many people, the problem is not in the planning, the problem is in the unforeseen — the unanticipated difficulties or challenges life throws our way. You use the credit, but then you or your spouse experience a job setback and you can’t make the payments. That’s the one the planning didn’t account for.”
7 Things to Remember About a Credit Limit Increase
1. It May Negatively Affect Your Credit
With great power comes great responsibility. And by that I mean having this new limit on your card requires responsibility on your part. Make sure you continue to make payments on time and remember that this can seriously affect your credit score.
2. Don’t Go On a Spending Spree
There is no such thing as free money. Just because you now have a higher credit limit doesn’t mean you can go and buy that $2,000 handbag you’ve been drooling over for months.
Use this new credit wisely and plan your purchases.
Live within your means and remember, just because you have more money to spend doesn’t mean you have to spend it.
3. This Can Improve Your Credit Score
Having a higher limit means you can build even more credit.
4. Your Limit Was Raised For a Reason
You've built up a good relationship with your card issuer, and it trusts you enough to have this new limit. Don’t break that trust. This relationship is just as important now as it was before. And bear in mind that there is the opportunity to get your limit raised again in the future if you continue to be a good customer.
5. The Limit Can Be Raised Again
If this is your first time getting your card limit raised, remember that there is the opportunity in the future that your limit will be raised again.
6. Don’t Be Greedy
Focus on the present. Become accustomed to having this new, higher limit before you consider applying for an even higher one. Make sure you can make monthly payments. When you're used to it, then apply for a higher limit if you really want to.
7. You Don’t Have to Hit the Credit Limit
Many people forget that just because you have a higher limit, doesn’t mean you have to go and spend more money. It’s called a limit, not a target.
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