Why and how you should ask for a credit limit increase

Asking for a credit limit increase can be advantageous in a few ways - it could help boost your credit score or give you the wiggle room you need to use your card for more everyday purchases. But before you call and ask, be sure you've been putting your best credit foot forward.

A few simple steps can prove to banks you can handle credit responsibly and encourage them to raise your card's limit.

Before you ask
What banks are looking for "is evidence that you can pay off your credit card on a regular basis and that you're able to properly handle your debt," says Scott Plaskett, senior financial planner and CEO at Ironshield Financial Planning.

Many banks suggest that it's best if you have been a cardholder for at least a year before asking for a credit limit increase. Then, display good behaviour: pay your bill on time each month, don't go over your limit and avoid carrying over a balance. Plaskett did this and was able to ask for an increase once a quarter. request-credit-increase

"I would go out, buy some things and I would pay the credit card off in full," he says. "I would do that for a quarter, and then I'd call the company back and request an increase in the credit limit. What they saw was a pattern of paying it on time, paying it in full, and they recognized I had the ability to properly manage that debt."

One caution: Make sure you're asking for a credit limit increase for the right reasons. If you're seeking a credit limit increase because you're bumping up against your current limit or not able to pay off other credit cards, then raising your limit probably is not a good idea, says Plaskett.

"That's a negative spiral," he says. Plus, it's unlikely you would be approved for an increase if you are desperate for credit, anyway.

How to ask
Some credit card issuers offer an online application for credit increase, but if you want to make your case personally it's best to call customer service.

Try using this statement as a starting point:

"I've been a loyal customer for over a year now, and I've proven my ability to spend responsibly. I have consistently paid at least the minimum payment, on time, each month, and my balance is only $X. I'd like to increase my credit limit to be able to use my card more."

According to the Financial Consumer Agency of Canada (FCAC), federally regulated institutions have to get your consent before they can increase your credit card limit. If you give verbal consent, then the institution must provide confirmation in writing no later than your next statement.

Other effects of asking for a higher credit limit
Having a higher limit on your credit cards will actually give your credit score a helping hand; the better you can illustrate your ability to manage your revolving credit, the higher your score will be, says Plaskett.

A higher limit also decreases your credit utilization ratio, which is the amount of credit you have available compared to how much you use. Creditors like to see a low utilization, no more than about 30 to 40 per cent of your limit.

This ratio also makes up a large portion of your credit score, so raising your credit limit and lowering your credit utilization also can boost your score. For example: If you're currently holding a credit card balance at half of your limit, a credit increase could push your credit utilization down, nudging your score higher.

If you're using your card to pay bills or if you have pre-authorized payments coming off the card, a higher credit limit may prevent you from going through your credit ceiling. Maxing out your card and topping your limit could result in fees or a premature end to a promotional offer, such as a 0 per cent interest deal.

Know, however, that asking for a credit limit increase could result in a "hard pull" on your credit profile. That's when a creditor pulls your credit because you are seeking a loan, mortgage, credit card or other borrowing. A hard pull does negatively impact your credit score, if only temporarily, and too many hard pulls in a short period of time is a red flag to future lenders.

In the end, it's important to simply take a "reasonable approach" to increasing your credit limit, says Patricia White, executive director of Credit Counselling Canada. It's not a bad thing to increase your limit, as long as it's done for the right reasons.

See related: End the vicious cycle of using your card to make ends meet, How to get your bank, creditor to reverse your fees, Your options if your issuer changes your agreement
Published August 5, 2016

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