Being improved by your credit card company for a credit limit increase improves your credit score by boosting the ratio of credit used to credit available, but a rejection could lower your credit score. On the flip side, an approval for a credit limit increase can lower your score too. The actual effect of a credit increase request depends on how your creditor authorizes credit limit increases.
Identification
A rejection for credit or approval for a limit increase can hurt your credit score if the company performs a credit check. When a company requests your credit history on your behalf, the Fair Isaac Corp. scoring system reduces your score between zero and five points regardless of an approval or denial, according to Leslie McFadden of Bankrate.com.
Considerations
While a rejection does not hurt you beyond the credit inquiry, you lose out on lowering your credit utilization ratio, or the portion of your credit limit you use. Maxing out a credit card can lower your score by 45 points or more if you have an elite score -- a FICO rating above 780. However, asking for a higher limit because you want to add debt to your account probably would lower your credit rating.
Potential
If the rejection for a credit limit increase motivates you to put in more applications, your credit rating will take a further dive because of the extra inquiries. Also, constant rejections for credit may lower your self-esteem. This could cause you to stop trying to tackle debt problems and make payments on time to boost your credit rating.
Tip
If a company offers to increase your credit limit without your consent, the increase does not negatively affect your credit. If you need to ask your credit card company for a credit limit increase, also query the company about its credit check policy. If the limit increase requires a credit check, you may want to wait until the company offers a limit on their own accord, or improve your credit history before allowing a credit check.
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