Does Increasing My Credit Line Hurt My Credit?

Increasing your credit line alone can actually help your credit score. In fact, many consumers seek credit limit increases as an approach to improve their credit. However, a hard credit inquiry, which some creditors perform when you request a limit increase, can cost you some points.

Credit Score Basics

Credit scores offer a basis for lenders to make informed decisions about your credit worthiness. The FICO scoring model, developed by the Fair Isaac Corporation, serves as the basis for reports issued by Equifax, Experian and TransUnion. The FICO model includes many credit behavior factors, but these are categorized as credit history, length of credit history, amounts owed, new accounts and types of accounts, according to the MyFICO website, which is owned and operated by the Fair Isaac Corporation.

Increasing Your Limit

Increased credit lines can happen based on unsolicited decisions by a lender or on request from the borrower. If your current credit limit is $10,000, for instance, you might get an increase to $11,000 or $12,000. This limit increase effectively lowers your debt utilization ratio, which is the percentage of your available credit currently in use. Lowering your debt utilization relates to the amounts owed section, which MyFICO shows as 30 percent of your score computation.

Debt Utilization

Your debt or credit utilization is calculated by account and in total. When you get an increase on a given line, you improve the utilization ratio on that account as well as overall. As an example, when you are using $5,000 of a $10,000 limit, your ratio on that account is 50 percent. If you get an increase to a $12,000 limit, your ratio decreases to just under 42 percent, which may improve your credit score by several points once the change is reported to the bureaus.

Risks

Improving your credit rating is not the only important consideration in raising a line. You should also ponder the risks of gaining access to more credit if you have poor spending habits. Additionally, CreditRepair.org points out the worst-case scenario is where you request a credit limit increase, which can lead to a point-deducing inquiry, and then not get the line increase. Thus, you might consult with the card provider prior to seeking the limit increase.