1 Apr, 2015
Credit limits used to be easily handled; if you ran out of credit, you simply asked the credit card company for more credit. Since the recession, however, this is no longer a reality. In fact, many credit card companies will decrease your credit line if you call to ask for an increase as protection against default on their card. The credit card companies may worry that you are asking for a higher credit limit in order to max it out and then not pay it, as could happen if you were about to lose your job or have any other financial disaster occur in your life. For the most part, however, credit card companies will take into consideration the reasons you want an increase and will decide from there.
Increased Credit and your Credit Score
Assuming that the credit card company decided to grant your request to have an increased credit limit, it could help your credit score if you use it right. If you have a credit card with a high balance, and this is the card you want the increased limit on, this could hurt your credit. The credit bureaus do not actually take into consideration your credit limits, but how much you have outstanding in relation to that limit. If you have too much money outstanding, your score will be lowered. Typically any amount that is around 20 percent of the available credit is the best for your credit score, anything above that can begin to hurt your credit score.
Another large factor in your credit score is the total amount of debt you owe. If you are granted a credit limit increase, you have the ability to charge more. This means more total debt, which has an impact on your credit score. If your credit utilization rate is above 20 percent, plus you increase your total debt significantly, you could harm your score quite a bit as the total of these two factors make up 30 percent of your credit score.
Decreased Credit and your Credit Score
If your credit card company were to decrease your credit line, which they have the right to do at any given point; it could hurt your credit score in some situations. The only time this would not hurt your credit score is if you do not have a balance on the card as nothing will change in the eyes of the credit bureaus. On the other hand, if you have an outstanding balance, a lower credit line can significantly hurt your score, as it will increase your credit utilization rate on that card as well as an accumulated total with all of your debt. The best way to get around a decreased credit limit is to pay your balances down as much as possible as fast as you can. The lower your credit utilization rate, the better your credit score will be in the end.
Your available credit lines play a significant role in your overall credit score if you use the credit that is available to you. Ideally, you should not use more than 20 percent of any card as well as keep your total debt under 20 percent of the total available to you. This shows responsibility in your use of your credit along with regular, timely payments. Credit card companies can change your credit lines at any given time, especially if they see issues arising with your current financial situation. In order to avoid any negative activity on your credit report, stay on top of your balances and adjust your credit lines as you deem necessary along the way.