Does it Hurt to Increase Your Credit Limit?

Dear MNB,

Any time you make a change to your credit history you may see a temporary dip in credit scores. However, increasing your credit limits on your credit cards will not likely hurt, and can help, your credit scores in the long run.

How Balances and Credit Limits Affect Credit Scores

As long as you don't also increase your credit card balances, an increase in your credit limits should reduce your utilization rate, or balance-to-limit ratio. The lower your utilization rate, the better for your credit scores.

Your credit utilization rate, sometimes called your utilization ratio, is calculated by taking the total of all your credit card balances and dividing it by the total of all your credit card limits. Credit utilization is the second most important factor in credit scores, right after payment history.

Why Changes to Your Credit History Can Cause a Dip in Scores

Any time you make a change to your credit history, such as opening a new account or increasing your credit limit, it's possible to see a temporary dip in credit scores until your credit report stabilizes.

Asking your lender to increase your credit limit could result in a hard inquiry on your credit report. Although inquiries have a minimal impact on credit scores, applying for an increase on multiple accounts within a short period of time may result in multiple inquiries being added to your credit history, which could cause a temporary decline in your scores.

However, the longer ago an inquiry occurred, the less impact it will have. Generally, after a few payment periods credit scores rebound because there is no new account representing additional debt.

Keeping your credit card balances low and making all your payments on time are the keys to having good credit scores, with or without that credit line increase.

Thanks for asking,
Jennifer White, Consumer Education Specialist