Will It Hurt My Credit Score If I Request an Increase in My Credit Limit?

The data in your credit report are divided into five separate categories and are used to determine your FICO credit score, named for the company that created it. Depending on the length of your credit history, which accounts for just 15 percent of your credit score, the importance given to each category can vary. It may not hurt your credit score if you request an increase in your credit limit, depending on your specific data in the five categories.

FICO Score

A quick breakdown of the categories and their level of importance involved in calculating your FICO credit score is as follows: your payment history, 35 percent; the total amounts you owe, 30 percent; length of your credit history, 15 percent; newly acquired credit accounts, 10 percent; and the types of credit used, 10 percent. Any effect on your credit score due to a request to increase your credit limit falls under the "amounts owed" category, which makes up almost a third of your overall FICO rating. More specifically, an increase in your credit limit constitutes activity that could alter something called your credit-utilization ratio.

Credit-Utilization Ratio

The proportion of the credit lines you are using -- balances owing -- in relation to your total available credit is your credit-utilization ratio. The lower your credit-utilization ratio is, the better it is for your credit score. When considering you for a new credit account or loan, creditors and lenders prefer to see a credit-utilization ratio around 30 percent and no more than 35 percent. The FICO credit-scoring system is more concerned with how you manage your credit limits than how much available credit you have.

Increasing Credit Limits

If you have two credit cards with a combined available credit limit of $22,000 ($15,000 and $7,000 respectively) and you are carrying a balance of $6,000 on the card with a $7,000 limit, your credit-utilization ratio is only 27 percent. If you decide to cancel the card with a $15,000 limit and zero balance, the result is a jump in your credit-utilization ratio to 86 percent, which could put a ding in your credit score. On the other side of it, if you keep both credit card accounts and request an increase in your credit limit to $10,000 on the $7,000 card, your utilization rate drops to 24 percent, which may have a positive effect on your credit score.

Considerations

The FICO scoring system takes into consideration all the aforementioned categories, rather than the information found in just one or two of them. Your credit score is based only on the information found in your credit report. It may hurt your credit score if you request an increase in your credit limit and then proceed to raise your utilization ratio by using the additional credit. It is best to shoot for a credit-utilization ratio of 30 percent or lower for each of your credit cards, as well as your overall credit. Turning down an offer for a credit limit increase is better if it removes an unnecessary temptation and simplifies your finances.