Should I Increase My Credit Limit?

All traditional credit cards come with credit limits, which is the maximum amount of credit you can put on your card. Sometimes, however, it becomes necessary to ask a card issuer for a credit card limit increase. A credit card limit increase can be a good idea if you’re looking to get a higher credit utilization rate and improve your credit score. That’s because credit utilization is an important factor credit bureaus use to assign each person a credit score. 

Asking for a credit card limit increase can also be a smart option if you have some big purchases coming up and don’t want to exceed your card’s credit limit, which could result in your card being refused by a merchant or, worse yet, getting charged an over-limit fee by your issuer. 

That being said, credit limit increases can be a bad idea for someone who has issues with controlling their spending, in which case a higher limit could lead to substantial consumer debt and a decrease in their credit score. Note also that asking for a credit limit increase can result in a credit check, which can also harm your score. 

What Does it Mean to Have Your Credit Limit Increased?

Almost all credit cards come with credit limits. When you first receive a new credit card, the issuer automatically assigns the card a credit limit. A credit limit increase is when you get a higher limit either because you asked for a credit card limit increase or the issuer offered to give you a higher limit. So, if your limit was normally $1000 and you got a credit limit increase to $1500, you would now be able to put $1500 worth of charges on the card.

Interestingly, in Canada, a card issuer can’t give a credit card limit increase without your permission. This rule was enacted by the government as a way to help consumers keep spending in check. 

Advantages of Increasing Your Credit Limit

There are numerous advantages to having higher credit limits on your credit cards:

Lower Credit Utilization

Credit utilization is how much of your available credit you’re using at any one time. Credit bureaus like to see credit utilization ratios below 30%. When you get a credit card credit limit increase, your usage rate will go down (especially if you ask for a substantial credit limit increase) as long as you don’t use more available credit. A credit limit increase can be a good idea if you have cards with minimal credit limits, because in that case it’s much easier to use up too much of your available credit and have a high credit utilization ratio. 

Financial Emergencies

A credit card limit increase can also help you in the event of an emergency. It’s much better to have access to credit you don’t need than to go searching for credit when you suddenly have an emergency and need funds fast. A high credit limit can be a good safety net to have if you run into an unforeseen situation like car repairs or a plumbing emergency that’s resulted in a flooded basement. 

That being said, credit cards come with high interest rates so you only want to rely on them as a last resort. Try to have anywhere from three to six months of earnings set aside in an emergency fund for when unexpected events strike. Nonetheless, while you don’t want to rely on a credit card as a source of emergency funds, it’s still great to have if you need it.

Earn More Rewards

One of the best features of a reward credit card is the great feeling you get when you see that cash-back or those rewards points start to pile up. With a higher credit limit, you could charge big-ticket items to the card and rake in those credit card rewards. If you always pay off your balance in full each month then you don’t have to worry about interest charges detracting from the value of your rewards. 

Disadvantages of Increasing Your Credit Limit

There are also several disadvantages to increasing your credit card limits that are worth considering:

Hard Credit Inquiries

If you request a credit limit increase rather than waiting for the credit card company to offer you one, it could result in a hard credit check on your credit file. Credit checks occur when a potential lender (like a credit card company) asks a credit bureau to review your file to see your credit score and your payment history. 

The number and frequency of hard credit checks are one of the factors used to calculate your credit score. When there’s too many credit checks on your file, it can reduce your credit score because credit bureaus assume you may be in financial difficulty if you suddenly need access to more credit. Furthermore, a credit check can stay on your report for up to three years, so if you’re worried about your score, it may be better to avoid a credit check and hold off on asking for an increase. 

More Debt

For some people, a credit limit increase can be an invitation to spend beyond their means. Spending can quickly get out of control and you could soon find yourself drowning in debt that could take years to pay off. If you find it hard to curb spending then a lower credit limit can be a handy cut off that will help keep your spending in check. 

Interest

The reason that credit cards can so easily lead to more debt is because of their high interest rates. Credit cards in Canada often have interest rates of at least 19.99% or more. If you don’t pay off your balance each month in full, your debt will multiply quickly and soon become unmanageable. 

Should You Request a Credit Limit Increase?

It’s really up to you whether or not to ask for a credit increase. A higher credit limit can be a useful asset if you’re looking to have a better credit utilization rate or want to have a financial backup in case of an emergency. However, if a higher limit would encourage you to spend more and possibly lead to more debt, or cause your score to decrease because of a credit check, it’s wise to hold off on asking for an increase. It’s crucial to only go after a credit limit increase if you’re responsible about credit card management. 

Another option to consider if you need access to cash would be to use one of your lines of credit or make a credit line increase request. Lines of credit tend to have much lower interest rates than credit cards so they can be a better option than a credit card limit increase. 

How to Ask for a Credit Limit Increase

Remember that, in Canada, a card company is not allowed to increase your limit without your permission, so you will have to proactively make a credit card limit request if you want one. To get an increase in your credit limit, you generally have two choices:

• You can make a credit card limit request to your card issuer directly by calling them 

• Make a credit card increase request online. Many of the major banks have an online option that allows clients to ask for a credit limit increase. Look for something like “request a credit limit increase” when accessing your online credit card account and just follow the steps.

No matter how you decide to ask for a credit card limit increase, the right timing is crucial. It’s generally not advisable to ask for a higher limit if you just got the card. Issuers like to get to know you as a customer and see what your payment habits are like before they give you a higher limit. For that reason, if you’ve recently missed or been late on a few payments, hold off on asking for an increase until you have a good, consistent track record of responsibly managing your credit card. The more you develop a track record of being a good, responsible cardholder who manages credit well, the more likely you are to get approved for a credit limit increase.

The Bottom Line

Before asking for a credit limit increase, it’s crucial to thoroughly go over the benefits and potential pitfalls of having access to more credit. While it can help with things like your credit utilization ratio, a higher limit can lead to more spending and a huge amount of high-interest debt if you’re not careful. The key is to be honest with yourself about your money habits before making a credit limit increase request. That way, you’ll be able to make an informed decision about whether or not a credit limit increase is right for you.