While a credit limit increase might make it easier for you to pay for your next big purchase or lower yourcredit utilization rate, consumers should know that it can actually impact your credit score.
CNBC Select spoke with Ted Rossman, credit card senior industry analyst at Bankrate, and Matt Schulz, chief credit analyst at LendingTree, to find out more about how your credit score could be affected by requesting a higher credit limit.
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How to request a credit limit increase
Getting your credit limit increased can be as easy as calling customer service or making a request through your credit card issuer's mobile app. Typically, you'll want to request a credit limit increase if your income has increased recently and you have good credit habits. Keep in mind, however, that if you're approved for a higher line of credit, it may still take several weeks to appear on your credit report.
Is it a credit limit increase a soft pull or hard pull?
Depending on the card issuer, making a request for a higher credit limit can incur either a hard inquiry, a soft inquiry or both types of credit checks into your credit report, explains Rossman.
A hard inquiry occurs when a lender pulls your credit report —this action typically causes your credit score to decrease between five and 10 points. Note that while a hard inquiry will only affect your credit score for up to one year, it will stay on your credit report for two years.
In contrast, a soft credit check doesn't have any effect on your credit score. For example, Capital One would not perform a hard inquiry if a cardholder were to request an increased credit limit for one of their Capital One credit cards, including cards like Capital One Venture X Rewards Credit Card (see rates and fees), which CNBC Select named as editor's choice for the best credit card.
Capital One Venture X Rewards Credit Card
Learn More
Rewards
10 Miles per dollar on hotels and rental cars, 5 Miles per dollar on flights when booked via Capital One Travel; unlimited 2X miles on all other eligible purchases
Welcome bonus
Earn 75,000 bonus miles once you spend $4,000 on purchases within the first 3 months from account opening
Annual fee
$395
Intro APR
None
Regular APR
19.99% - 29.99% variable APR
Balance transfer fee
$0 at the Transfer APR, 4% of the amount of each transferred balance that posts to your account at a promotional APR that Capital One may offer to you
Foreign transaction fees
None
Credit needed
Excellent
See rates and fees. Terms apply.
Read our Capital One Venture X Rewards Credit Card review.
Keep in mind that most card issuers don't publicly reveal which type of credit check they'll perform on consumers requesting a higher credit limit, so you'll want to call ahead and ask to be sure.
You can quickly request a credit limit increase for Citi credit cards, like the Citi Double Cash® Card, through the bank's app with just a few taps. And reports indicate that Citibank will almost always only use a soft pull when making this request, but if you want a higher credit limit than what Citi initially offers you, they'll then perform a hard pull. Citi also offers automatic credit limit increases which don't result in a hard pull.
Citi Double Cash® Card
Learn More
Rewards
Earn 2% on every purchase with unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases. To earn cash back, pay at least the minimum due on time. Plus, for a limited time, earn 5% total cash back on hotel, car rentals and attractions booked on the Citi Travel℠ portal through 12/31/24
Welcome bonus
Earn $200 cash back after you spend $1,500 on purchases in the first 6 months of account opening. This bonus offer will be fulfilled as 20,000 ThankYou® Points, which can be redeemed for $200 cash back.
Annual fee
$0
Intro APR
0% for the first 18 months on balance transfers; N/A for purchases
Regular APR
19.24% - 29.24% variable
Balance transfer fee
For balance transfers completed within 4 months of account opening, an intro balance transfer fee of 3% of each transfer ($5 minimum) applies; after that, a balance transfer fee of 5% of each transfer ($5 minimum) applies
Foreign transaction fee
3%
Credit needed
Fair/Good/Excellent
See rates and fees. Terms apply.
Read our Citi Double Cash® Card review.
Increasing your credit limit could improve your credit score in the long run
Schulz notes that you shouldn't be too concerned if your card issuer performs a hard inquiry into your credit report as the slight ding to your credit score is only temporary. The benefits of asking and receiving a higher credit limit often outweigh the negative effects of the inquiry into your credit report, says Schulz.
When you increase your credit limit, you may also be improving your credit utilization ratio, which can help your credit score in the long run. There are five factors that make up your FICO credit score: your payment history (35%), the amount owed (30%), the length of your credit history (15%), your credit mix (10%) and new credit (10%).
The amount owed category (30%) considers five factors as well, including how much money you owe across all your accounts, the amount you owe based on the different types of accounts you have, the value of your current balances, how much you owe on your installment loans and your credit utilization ratio.
Therefore, experts say the credit utilization ratio comprises 30% of your FICO score since it only applies to revolving lines of credit and is defined as the ratio of credit you're using to the total amount of credit you've been extended.
For example, if you owe $2,000 on a credit card with a $10,000 limit, that means you have a utilization ratio of 20% on that card. The total credit utilization ratio would be based on the total amount of revolving credit you've been extended and the total amount you've used.
While experts generally recommend that people keep their credit utilization ratio under 30%, anything below 10% is even better.
Credit utilization is the second most important factor in the FICO scoring formula after your payment history, so improving your credit utilization ratio can end up having a positive impact on your credit history, explains Schulz.
Getting into the habit of checking your credit report can also make it easier to spot incidents of fraud. Credit monitoring services such as CreditWise®, Experian free credit monitoring and IdentityForce® UltraSecure can also be used to detect errors on your credit report —if someone was applying for a line of credit under your name, for instance.
Experian Dark Web Scan + Credit Monitoring
On Experian's secure site
Cost
Free
Credit bureaus monitored
Experian
Credit scoring model used
FICO®
Dark web scan
Yes, one-time only
Identity insurance
No
Terms apply.
IdentityForce®
On IdentityForce®'s secure site.
Cost
UltraSecure Individual: $19.90 per month or $199.90 per year; UltraSecure+Credit Individual: $34.90 per month or $349.90 per year; UltraSecure Family: $24.90 per month or $249.90 per year; UltraSecure+Credit Family: $39.90 per month or $399.90 per year
Credit bureaus monitored
3-bureau credit monitoring, alerts and reports: Experian, Equifax and TransUnion®, with UltraSecure+Credit Individual and UltraSecure+Credit Family plans only
Credit scoring model used
VantageScore®3.0, with UltraSecure+Credit Individual and UltraSecure+Credit Family plans only
Dark web scan
Yes, with all plans
Identity theft insurance
Yes, at least $1 million with all plans
Terms apply.
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Bottom line
Regardless of whether your credit card issuer performs a hard or soft credit check (or both), when you ask for a higher credit limit, the impact those inquiries have on your credit score is typically negligible in the long run. Cardholders should instead focus more on why they're asking for a higher credit limit — you don't want to use the credit increase to bankroll a lifestyle you can't afford, but remember, getting your credit limit raised may help you finance important expenses and can boost your credit score by lowering your credit utilization ratio.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
