Does a Credit Limit Increase Help My Credit?

Your credit limit is the maximum amount you can spend on your credit card at any given point in time. Once you have reached your limit, you have to pay down your balance before you can use the card again. When your credit limit is increased, this can help your credit score, but only if you don't actually use the extra credit.

Credit Utilization

The main way that increasing your credit limit can help your credit score is through your credit utilization. This ratio compares the balance on each credit card to the card's limit, in addition to comparing your overall credit card balances to your overall credit limits. The lower your utilization, the better. If you get a higher credit limit and keep your balance the same, your utilization will drop and your credit score will increase.

Ideal Utilization

According to Liz Weston of MSN Money, using more than 30 percent of your available credit can hurt your credit score. Bringing your utilization below 30 percent will help you, and for the best score, your utilization should be under 10 percent. For example, if you have a balance of $1,800 on a card with a limit of $4,000, your utilization is 45 percent, which is not great. However, if you get a credit limit increase to $7,000, your utilization drops to only 26 percent, which is within the target range. To get your utilization to 10 percent, you would need to pay off $1,100 of your debt after the credit line increase. Getting down to 10 percent with the old credit limit would have required paying off $1,400.

Potential Consequences

In some cases, a credit limit increase will result in your credit score dropping. For example, if the credit card company runs a hard inquiry to check your credit before issuing the increase, this could hurt your score by about five points. In addition, if you use your credit limit increase to accumulate more debt, this increases the amount you owe and hurts your score. Additional debt increases your minimum payment. If you miss a payment because you cannot afford the higher amount, this will hurt your score, as well.

Increasing Your Limits

Many credit card companies periodically review all of their accounts and issue credit limit increases to customers who have used their cards responsibly. If you have not had an increase in your limit, you can call the customer service number on the back of your credit card and request an increase yourself. Point out how long you have been a customer and how responsible you have been in using your credit in the past. The credit card company might ask for your employment information and annual income to help decide whether your income can support the payments.