Credit Line Increase & Credit Score

Just because a credit card issuer surprises you with a credit line increase to show you how much it values your patronage, it doesn't mean you should celebrate by buying a new pair of shoes. In fact, while the impact of a limit increase is good for your credit score in general, the way you treat the account will determine how your score is impacted over time.

Credit Line Increases

Credit card issuers reward good behavior like making on-time payments, keeping low balances and maintaining a long history with the company by increasing your credit line. However, this "reward" may be mostly beneficial to the credit card company if you take the limit increase as your signal to spend. Creditors like when customers carry higher balances because it means that they get to suck more money out of them each month.

Debt Utilization Ratio

When your credit line increases, it has a positive impact on your debt utilization ratio. This ratio is the amount of debt you have in relationship to the amount of credit available to you. The lower your debt utilization ratio, the wider of a gap there is between your debt and your limit, which is a good reflection on your credit. Your debt utilization ratio makes up roughly 30 percent of your credit score; therefore, a credit line increase positively influences your overall score.

Warnings

The positive impact on your credit score caused by an increased limit disappears if you increase your balance. To maintain the positive effect on your score, you need to keep your balance as low as it was when the limit was enacted. To boost your credit score even more, pay down your balance or eliminate it all together. The Better Business Bureau recommends keeping your balances to 25 percent of your credit limit or lower.

Considerations

For those who feel like they won't be able to control their spending, it may be a good idea to turn down the credit line increase. According to Bankrate writer Don Taylor, declining a credit line increase will have no negative impact on your score or your account. Spending more because you have more credit available will only damage your credit score, so by declining a limit increase you may be doing damage control for yourself.