While a credit limit increase might make it easier for you to pay for your next big purchase or lower your credit 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, which CNBC Select named as editor's choice for the best credit card.
The Capital One Venture X Rewards Credit Card is a premium credit card with a myriad of benefits and a lower annual fee than other high-end cards with similar features.
Highlights
- Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
- Receive a $300 annual credit for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of trip options
- Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
- Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights and vacation rentals booked through Capital One Travel
- Earn unlimited 2X miles on all other purchases
- Enjoy access to 1,300+ lounges worldwide, including Capital One Lounge and Landing locations and participating Priority Pass™ lounges, after enrollment
- Use your Venture X miles to easily cover travel expenses, including flights, hotels, rental cars and more—you can even transfer your miles to your choice of 15+ travel loyalty programs
- Enjoy a $100 experience credit and other premium benefits with every hotel and vacation rental booked from the Premier Collection
- Receive up to a $120 credit for Global Entry or TSA PreCheck®
- Top rated mobile app
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
$0
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.
The Citi Double Cash® Card is one of the best no-annual-fee cash-back cards thanks to its straightforward rewards structure. Card is one of the best no-annual-fee cash-back cards thanks to its straightforward rewards structure.
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- 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.
- 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, earn 5% total cash back on hotel, car rentals and attractions booked with Citi Travel.
- Balance Transfer Only Offer: 0% intro APR on Balance Transfers for 18 months. After that, the variable APR will be 17.49% - 27.49%, based on your creditworthiness.
- Balance Transfers do not earn cash back. Intro APR does not apply to purchases.
- If you transfer a balance, interest will be charged on your purchases unless you pay your entire balance (including balance transfers) by the due date each month.
- There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
Balance transfer fee
There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. A balance transfer fee of 5% of each transfer ($5 minimum) applies if completed after 4 months of account opening.
Foreign transaction fee
3%
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
Cost
Free
Credit bureaus monitored
Experian
Credit scoring model used
FICO®
Dark web scan
Yes, one-time only
Identity insurance
No
Terms apply.
IdentityForce®
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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