Will an Increase in a Credit Line Affect a Credit Score?

With most Americans having multiple lines of credit at any given time, usually in the form of credit cards, a reasonable question is whether increases to a credit line will impact a credit score. The answer is that it depends on how you treat the extra credit you get, whether the credit card company issues an inquiry and what else is happening with other areas of your credit.

Debt Utilization Ratio

Part of your credit score is your debt utilization ratio. This is simply a number that indicates the amount of credit you are using divided by the amount of credit you have available to you. Typically, a lower debt utilization ratio will raise your credit score slightly, as a low ratio means that you still have borrowing room left. This is partly why your score increases if you pay off debts but keep the accounts open.

Credit Lines and Debt Utilization

When you are given an increase in your credit line, either because of your good history with your company or because you request one, you increase the amount of total credit by which your accessed credit is divided. For instance, if you were using $250 of a $1,000 in credit, your debt utilization ratio would be 25 percent. If you got an extra $500 in credit, your ratio would be $250 divided by $1,500, or just under 17 percent. For this reason, getting a better credit limit sometimes can raise your credit score.

Increased Spending

Improving your credit score using credit line increases assumes that, even though your available credit goes up, your spending does not. However, in reality, when some people get increases to their credit line, they spend more than they otherwise would. In these instances, the debt utilization ratio doesn't necessarily decrease, and for some people, the extra spending actually could lower the debt utilization ratio.

Inquiries

Often, if you request a credit line increase on your own, the credit card company will investigate your financial history to determine whether you will be a greater risk if given the increase. These investigations sometimes show up on your credit report as inquiries. These can damage your credit score and take time to disappear off your credit report.

Bottom Line

As Maxine Sweet, financial expert with Experian, points out, everything in your credit score is connected. It is not entirely possible to guarantee that your score will go up if your credit lines increase for this reason. Inquiries necessary to approve the increase likely will cancel out the benefits of the lower debt-to-income ratio, at least initially. Because the debt utilization ratio is just one part of your credit score, any credit line increases you receive probably will provide only marginal improvement unless the amount of the increases is significant.