Spending more likely means you're inching closer to your credit card limit, and that, experts say, means it could be a good time to ask for a higher limit. Your credit limit dictates how much you can spend on a specific card, but it also has broader effects on your finances.
Credit limit increases can help improve your credit score, says Beverly Harzog, author of five personal finance books and credit card expert for U.S. News & World Report. But she doesn’t recommend making requests that are unlikely to be approved. If you're carrying significant debt and have a low credit score, it's best to wait to request an increase until you're in a better spot, she said.
“I recommend asking for a credit limit increase only if you have a stellar payment history,” she says. “You don't want to call attention to yourself unless you can withstand the credit scrutiny.”
Asking for a limit increase can be as simple as making a quick call to your card issuer, or pressing a button in a banking app. But the ease of asking doesn't mean it's a good idea to request a larger limit just to go on a spending spree that you couldn’t otherwise afford, as fun as that may sound. You should always aim to pay your monthly credit card balance in full, and if you can’t, try to carry as low of a balance as possible.
It can, though, be wise to ask for a higher limit if you’re making sound purchases and paying your credit card bills to the best of your ability, but you're simply finding that you’re spending more of your limit because of higher prices.
Here are three reasons why requesting a credit limit increase can be a smart move.
Lower your utilization rate
A higher limit will help reduce your utilization rate — the amount you owe on your credit accounts as a fraction of your total line of credit. Lower utilization rates are typically associated with better credit scores, said Thomas Belding, a financial planner based in Chatham, New Jersey.
“If you increase your credit limit, it will actually decrease your utilization and thus can be a benefit to your credit rating, assuming that you don't just take that increased limit and borrow against it,” he says.
Credit experts recommend keeping your utilization rate below 30% as a good rule of thumb to avoid a negative impact to your credit score.
Harzog usually recommends picking up the phone and calling your credit card issuer if you’re ready to request a limit. When you’re on the phone with a customer service rep, she advises that you specifically state you’re requesting a limit increase because you’re watching your utilization rate.
“Don't hesitate to show that you know what you're talking about,” she says.
You should also mention if your income has increased because that can factor into your chances for approval, she said.
Better prepare for an emergency
Having a larger line of credit can be useful in the case of emergencies, like unforeseen expenses or a sudden loss of income. Eventually, your goal should be to build up an emergency savings fund to cover such expenses, but a credit card may be your only option while you work toward that goal.
The catch is that these types of emergencies are often how people fall into credit card debt. Still, if you have a high limit, your credit score won’t take as much of a hit if you have to spend more due to an emergency, Belding said.
“Things do occur, and if you need that $3,000 or whatever it might be, it’s a great tool to have as long as you can still manage to pay it off,” he says.
If you’re asking for a limit increase, you can even share your concern about emergencies as a reason for the request, Belding says. For example, you could tell the issuer that you’re driving an old car, and you’re not sure what type of expenses may come up.
When you make the request, Belding recommends asking for a modest increase — no more than 30% to 50% higher than your current limit. You can also ask your issuer if the request will involve a soft or a hard pull on your credit. When possible, you want to avoid hard pulls, as they can bring your credit score down a few points.
Earn more rewards
U.S. credit card customers love earning cash back from the purchases they make with rewards cards, and one recent survey found that nearly half of rewards cardholders are using their rewards to help offset some of the higher costs of everyday purchases.
If you have a relatively low credit limit that’s prohibiting you from putting many of your expenses on credit cards, getting a higher limit could help you change that and take advantage of rewards on more of your purchases.
Marc Lescarret, owner of Marc Alan Wealth Management, said he advises his clients to try to use credit cards as a rewards program, and he encourages people to work toward a high limit on a card that offers solid cash back.
“You borrow money for free, 30 days, [then] you get your 2% cash back or sometimes more," he says. "That's really what it's good for.”
If you successfully request a higher limit on a good rewards card, you’ll be able to put more of your spending on that card without exceeding a 30% utilization rate.
Keep in mind that if you're not in the habit of paying off your balance each month, then whatever you are earning in rewards is likely getting eaten up by interest charges. In other words: don't spend extra to get rewards if you can't afford to pay if off.