October 6, 2021 – By Laura Woods
When you first opened your credit card account, the spending limit seemed reasonable, but it’s no longer cutting it. You’ve been thinking about asking the credit card company to raise your limit, but you’re not sure if doing so is a wise move.
Approximately 95% of U.S. adults have a credit account open in their name, according to Experian. This accompanies a total of more than $756 billion in outstanding credit card debt — something you don’t want or, if you already have it, don’t want to rack up even more.
“A request to increase your credit card spending limit can be a good idea if you’re always exceeding the 30% utilization ratio, despite paying off your entire balance each month,” said Justin Green, CFP®, MSPFP, the founder of AssistFP, a virtual financial planning firm based in the Boston area. “Having a balance over 30% of your available credit will negatively impact your credit score.”
However, he said having more credit at your disposal isn’t always wise.
“It is not a good idea to request a higher spending limit if you’re maxed out and looking to spend more on the card,” he said. “That most likely means you have a spending problem and should seek assistance on solving your cash flows issues, instead of taking on more debt.”
When used responsibly, Katie Ross, executive vice president at American Consumer Credit Counseling, a nonprofit debt consolidation company, agreed that having an increased credit card spending limit is generally beneficial.
“You’ll have more spending power, and if you don’t dramatically increase your spending –remember the ideal 30% credit utilization rule — having a higher limit enables you to increase your credit score,” she said.
She said a changing lifestyle — i.e., buying more furniture for a new house or more groceries for your growing family — is a common scenario where it’s a good idea to increase your credit limit.
“Again, just make sure that you’re only using 30% or less of your credit,” she said.
Of course, Ross said asking for an increased credit spending limit isn’t always a good idea.
“For example, if you have low credit, don’t ask for a limit increase — doing so triggers a hard inquiry on your credit report, which can hurt your credit,” she said. “Or, if you think you’ll be tempted to overspend, or that you’ll struggle to pay off the bills, an increase won’t benefit you at all.”
Additionally, she said if your income decreases — along with your spending power — you shouldn’t seek out more credit.
If you do decide to request additional credit, Ross said to remember it comes with increased responsibility.
“Charge within your means — always remember that a credit card is a tool, not free money,” she said. “You want to feel confident that you’ll be able to pay the bill each month.”
Lamar Brabham, CEO and founder of Noel Taylor Agency Financial Services, a financial services firm in North Myrtle Beach, South Carolina, also emphasized the importance of making sure you can handle having additional credit.
“While having several credit cards and other types of debt is good when trying to establish a good credit score, you must be able to keep up with all the various payments,” he said. “Lenders like to see you can manage more than one debt at the same time.”
Therefore, he said it’s important to be smart with your additional credit — if you decide having it is a good idea.
“Even if your income can support additional financial obligations, there is still a risk your situation may change due to job loss, illness or any number of factors,” he said. “Remember, just because you are offered more credit that doesn’t mean you have to accept it.”
Brabham also noted that requesting a credit card spending limit increase isn’t the only way to get more spending power at your disposal.
“Asking for an increase versus taking out another credit card is something to consider as well,” he said. “Again, you must manage your debt, and too many separate accounts can be confusing and could cause mistakes — like late payments — to occur.”
If you find a new credit card with rewards that align with your lifestyle, he said taking this route might make more sense.
“Use your credit card for everyday purchases such as gas, food, etc., and then pay the total balance at the end of every month,” he said. “This will show you can use the credit and it’s also the best way to stay out of trouble with overspending.”
He said to remember that your credit score will go down in the short term, whether you increase your spending limit on an existing card or open a new account, but when used properly, it will go up even higher over time.
“The bottom line is that both increasing credit through the same card or taking out a new card will improve your overall credit situation — as long as you don’t get in over your head,” he said. “Check your credit score regularly and never bite off more than you can chew.”
Basically, no two people have the same credit situation, so only you can decide if requesting an increase on your spending limit is the right move for you. Take the time to thoroughly think it through, so you can make the best choice for your finances.