Did you know that the average credit limit for millennials is currently just over $20,000? That jumps up to nearly $40,000 for Baby Boomers. But, what if you’re well below that limit? No worries. There are ways that you can request to increase your credit line and open more high-limit credit cards.
Is that good for your finances and your credit score? Should you increase your credit limit? Absolutely? As long as increasing your credit line doesn’t lead you to max out your card each month with a higher balance, it can be great for your finances and, more specifically, your credit score.
Keep reading to learn more about why it can be good for your credit score and how to increase your credit line when you think you’re ready for it.
What is a Good Credit Score?
Okay, let’s start off by talking about credit scores. While you don’t necessarily need a good credit score to increase your credit limit, it can help a bit (along with some other factors)! But, what’s a good credit score?
It somewhat depends on the credit scoring model you’re looking at. One of the most popular and widely used is FICO. There are varying levels of a FICO credit score, and those range from poor, fair, good, and very good, to exceptional (which is anything above 800). To have a “good” FICO credit score, it needs to be at least 670 and can go all the way up to 739. Once you hit 740, you’re in the “very good” range.
Generally, if your credit score is above 700 and your household income is somewhat average, you won’t have any trouble increasing your credit limit. However, the entity in charge of increasing your credit limit is the card issuer (Capital One, Chase, etc.), so they’re also going to make sure you’ve been paying your bills on time and have been a responsible credit card user up until now.
What is a Credit Limit?
A credit limit is the maximum amount of credit that you can get from your credit card issuer. So, your credit limit is essentially the total amount of money you’re allowed to charge to your credit card. This means that if your credit limit is $5,000, for example, then you can’t charge more than $5,000 to your credit card without paying it back first.
Why is this important? Well, for starters, there are some serious consequences for going over your credit limit. Your card issuer can decline the transaction or charge an over-limit fee when you first go past what’s allowed on there, and that’s no fun.
Secondly, your credit limit affects your credit utilization rate. This rate, or ratio, is the amount of credit you’ve used divided by the total amount of credit you have available. This brings us to our next point…
How Much of Your Credit Limit Should You Use?
The answer to this is the same whether or not your credit limit is $2,000 or $20,000. Most credit scoring models start to ding you if you go over about 30% of your credit utilization rate. So, you should aim to never owe more than 30% of your total credit available during any given payment cycle.
So, if you have a $10,000 credit limit, you should only be spending $3,000 max before you start paying off your balance. When you increase your credit line, you increase the amount of money you’re able to take out without it affecting your credit utilization rate.
How to Ask for a Credit Line Increase
Ask Yourself: Is a Credit Line Increase Necessary?
First, we suggest thinking about why you want to increase your credit limit! Is it really necessary? The first step is assessing your current financial situation and considering the pros/\ and cons of increasing it. One of the biggest questions we suggest asking yourself is whether or not that will help improve certain aspects of your score. Also, consider if increasing your limit will be too tempting to you and cause you to spend more.
While having a higher line of credit can help reduce your credit utilization rate, it can also make you feel like you have more money to spend than you, well, actually have. Think about this and be honest with yourself about how tempting that would be.
Get Your Documents Organized
Think that a credit line increase is right for you? Great! Now, you’ll need to organize your documents together to present to your card issuer.
While most credit card companies have online portals where you can find a button that’ll allow you to automatically request a review of your credit line for an increase, we suggest calling them directly. Why? It’s the only way to speak to someone directly and ask them how much you can increase your credit limit without it triggering a hard inquiry.
You’ll be asked about your financial information, which includes your employment status and annual income, along with how much you pay for housing each month (whether that’s a mortgage or rent).
Monitor Your Credit Score with Cheese
Before applying to increase your credit line, it helps to monitor your score and work to improve it if you need to. Then, once you’ve successfully increased your credit limit, you can track changes in your score via the Cheese app!
That’s right. We’re expanding our financial services! Soon, we’ll launch an in-app credit builder feature that will easily integrate into the app so that you can track payments, monitor your score, and so much more!
Join Cheese today to start preparing for a brighter financial future.
