Does Credit Card Limit Increase Affect Your Credit Score?

Typically, a credit card limit increase will have positive effects on your credit score. Higher limits reduce your debt utilization ratio, which is important in credit score computing. You have to weigh these benefits against the potential risks of increasing your debt considerable if you do not manage it well.

Credit Card Limits

Credit card limits are initially determined based on your credit rating at the time of application, your current debt, and factors common to that credit card provider. Over time, limits are increased, either at the discretion of the provider, or at the request of the card holder. Some providers periodically raise limits to encourage you to use their cards. Once you have a proven reputation with a card provider, you can send a letter asking for an increase.

Credit Scores

Your individual credit score is assigned by three separate reporting bureaus --- Equifax, Experian and TransUnion. Each agency has its own scoring system, but they are all modified from the FICO scoring model, which originated from the Fair Isaac Corp. Debt utilization is a main factor in the scoring model. According to MyFICO, "amounts owed" accounts for 30 percent of your score. Length of credit history and payment factors make up around 50 percent. New credit accounts and types of accounts contribute 10 percent each.

Debt Utilization

Debt utilization is the percentage of your available loan limits that are currently in use. For instance, if you have $50,000 in available credit line and credit card limits, and only $5,000 in use, you have a 10 percent debt utilization. This is very good. Typically, a utilization below 30 percent is perceived as good by lenders. Lenders assume that, if you are not using much of your available loan limits, you are a responsible borrower, and not one desperately seeking new credit when you are already overwhelmed.

Your Response

Some consumers looking to repair damaged credit or build a higher credit score do not wait for credit card providers to take action. Often, if you maintain consistent payments and establish good history for at least six months, you can ask for a credit limit increase. Typically $500 to $1,000 is a reasonable limit increase to request. Know your spending habits, though. If you are concerned about your ability to avoid overspending, you might not want to gain access to more borrowing potential, even if it boosts your score a few points.