Does it hurt to increase your credit limit?

There are times when all of us need access to extra finance. But what’s the best way of getting it? Should you increase your credit limit? Or will that cause you problems in the long run? Here’s what you need to know.

Written by

Rob Silvey

Insurance expert

Posted

16 FEBRUARY 2022

9 min read

Does it hurt to increase your credit limit?

If you ask for a credit limit increase, it will probably affect your credit score. But you might be surprised to learn that rather than having a negative effect, it could actually work in your favour as long as you don’t spend up to the limit.

This is because if you increase your credit card limit, you’ll most likely be decreasing your credit utilisation ratio. What that means is you’ll be using a smaller proportion of the total amount of credit available to you – and that’s something lenders look upon favourably.

That said, it’s possible that increasing your limit could lead to an initial dip in your credit rating – but you should find that’s only temporary.

How credit limits impact your credit score

Your credit limit is first set when the credit card provider approves your application. Over time, by paying your bills on time, paying more than the minimum each month and staying below your credit limit, you’re proving to the provider that you can manage your account responsibly. In return, your provider may be happy to give you an increase in your credit limit, giving you more potential spending power. This can make it easier to build your credit rating as you pay back the increased amounts reliably.

If you ask for a sky-high credit limit, it suggests that you’re in financial straits. This alarms lenders, making them less likely to offer you credit. However, if you only use a small proportion of the credit available to you, it shows you’re in control of your money.

How long does your credit score take to recover after dropping?

The good news is that credit ratings tend to bounce back after a few payment periods – potentially just a few months – because there’s no new account showing new debt. Remember, the key to a good credit score is maintaining a low credit card balance and making all your payments on time.

What happens when you ask to increase your credit limit?

If you ask to increase your credit limit, your lender will check to make sure you’re a responsible borrower and to see what, if anything, has changed since you first applied. They could look at:

Your credit score
Your credit report
What other credit you’ve been applying for, reflected in hard searches on your credit report
Your employment status and earnings
Your spending, including housing costs and other debts

This check by the lender will typically leave a mark on your credit rating.

Approval of extra credit may be more likely if your situation has improved since your original card application, for example if your salary has increased, you’ve paid off debts, and you’ve made your card payments regularly and on time.

But remember, there are also things that you have no control over, like the wider economic outlook, which may affect a particular card provider’s willingness to lend

One way to get an idea of whether card providers might be willing to offer you more credit would be to do an eligibility check to see which cards you’re likely to be accepted for. This won’t affect your credit score. However, it’s up to each individual lender to make their own decision, so while other lenders may be willing to offer you credit, your own lender could still turn you down.

Why might I want to increase my credit limit?

There are lots of reasons why you might want to increase your credit limit.

Maybe you’ve changed jobs and have more work-related expenses. Or perhaps your monthly expenses have increased and, while you can afford to pay them, you want to pay by card to get the rewards the card offers.

You might be considering paying for a big purchase, like a car or wedding, on your card. If that’s the case, it’s worth figuring out whether increasing your credit limit is the most cost-effective way of paying for it.

Credit cards often charge a higher rate of interest than personal loans, so can be more expensive for borrowing – especially if you pay only the minimum amount every month. You can use our loan calculator to see how much you could borrow and what your repayments would be.

For a large purchase, you might also want to consider whether you’d be eligible for a 0% purchase card, where you pay no interest if you keep up with payments and pay off the whole debt before the interest-free period ends.

If you need to increase your credit limit just to make ends meet, then it’s a strong sign you’re struggling to manage your money. Are there any changes you could make in your life to ease the stress on your finances? Maybe you can manage your money better? Creating a budget can help you see where you money is going and potentially point to areas you can save money on your spending.

If you want to get out of debt but are struggling, it might be helpful to get free, non-judgmental debt advice from MoneyHelper.

What are the advantages of increasing my credit limit?

Increasing your credit limit does have advantages. A higher credit limit means you can use your credit card to make larger purchases and potentially cope with more emergencies. And you can do this without your credit utilisation rate – the proportion of the total amount of credit available to you that you’re using – climbing too high and negatively impacting your credit score.

It also means you’ll be less likely to go over your limit, which means you won’t be stung for extra fees and charges.

If you stay within your credit limit and make all your payments on time, this should also help your credit rating.

What should I watch out for when increasing my credit limit?

Some card providers, but not all, give you the opportunity to opt in to be regularly reviewed for credit limit increases. Consider whether opting in is the right option for you and your circumstances.
Before you apply for an increase in your limit, it can be a good idea to check your credit report and make sure there are no errors that could impact your application. Simple things, like a mistyped address, can cause problems.
Avoid applying for an increase within six months of getting a new card as this can indicate that you’re facing financial difficulties. It might be worth waiting to see if your lender automatically increases your limit, having seen that you’re behaving responsibly.
The trick is to increase your credit limit by the right amount. If you ask for too high a limit, you may find you’re tempted to overspend. But if you don’t increase your credit limit enough, you may not have enough to pay for what you’re buying. This could also leave you using a high proportion of your available balance – your credit utilisation. Lenders don’t like it if this is too high.
If you have more than one card, it might be a good idea to apply for the increase on the card with the most attractive interest rate.
If you're turned down, you can try again in six months or a year if your financial situation has improved. Or you may want to consider other options.

What are the alternatives to increasing my credit limit?

Increasing your credit limit isn’t always the best – or cheapest – way to borrow money. Instead of raising your credit limit, you could:

Apply for another credit card that offers 0% on purchases. You’ll need to make at least the minimum payment on time every month and pay off the balance within the 0% period to get the full benefit of this type of card.
Transfer your credit card debt to another card with a higher limit and 0% balance transfer interest rate. There may be a fee for transferring your balance and you’ll need to make at least the minimum repayments on time or you’ll lose the 0% rate.
Take out a personal loan, which might have a lower interest rate than a credit card.
Reconsider if what you really want is worth spending the money on. If so, could you save up for what you want instead? See our money saving tips.

How many times can you increase your credit limit?

This will depend on your individual circumstances and your lender. However, it’s not a good idea to keep increasing your limit, and most card providers suggest waiting a specified period of time – six months at least – before making another request to raise your limit. Make too many applications in a short period of time and lenders will assume you’re in financial trouble, making them less likely to accept you for extra credit.

And remember, by increasing your credit limit and using more credit, you’re also increasing your monthly repayments. Think hard about whether you can afford this – not just now, but if your circumstances change. Would you still be able to cover the repayments if your bills went up or your income went down?

Frequently asked questions

How do lenders set my credit limit?

When setting your credit limit, lenders will look at your credit record to see how you manage money. They’ll check if you have a mortgage or credit card debt, and see how good you are at paying those off.

My lender has offered me an increase to my credit that I didn’t ask for. Do I have to accept it?

No. Some lenders, from time to time, will offer you an increase without you asking. They’ll probably give you a deadline of around a month to accept it. If you don’t want the increase, typically you don’t have to do anything – the offer will simply expire. If you don’t want these kinds of offers, tell your card provider and they’ll stop sending them to you.

How can I avoid going over my credit limit?

Most card providers allow you to set up text or email alerts, or notifications in their app, to alert you when you’re getting close to the limit. And, of course, avoid using your card so you don’t add to what you owe.

If you’re close to your limit, avoid making late payments as the resulting charges could tip you over.

What is credit utilisation?

Credit utilisation is a term that credit card companies use to describe how much of your credit limit you’re using. So, if your limit is £4,000 and your balance is £1,000, your credit utilisation will be 25%. This is sometimes referred to as your utilisation ratio.

How does credit utilisation affect my credit score?

If your credit utilisation is high – that’s to say, you’re using more than 50% of your available balance – it may lower your credit rating. Certainly, this is something lenders frown upon.

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