When you see that tempting “request a credit-line increase” message on your credit card statement, it can be very tempting to take advantage of the offer. Before you apply for an increase, however, creditcards.com recommends asking yourself these five questions:
Why do I need a credit-line increase? Do you need an increase to help you finance a large purchase, like a trip or a new fridge, that you’ll be paying off the following month? Or are you spending more than you make and running out of credit? If it’s the latter, an increase is not a smart move and will only land you further in debt.
What’s my credit score? Before applying for an increase, make sure you know your current credit score. Even though you’re an existing credit card holder, asking for an increase is like applying for a new loan so check your credit report to see if there are any existing issues. Add up all your credit card lines and compare that to your total usage to determine your credit utilization score. If you’re using more than 30 percent of your total credit, that will negatively affect your score. If you have a history of late payments or have made only the minimum payments in the last six months or so, don’t ask for a line increase.
Can I afford a “hard pull?” When you apply for a credit-line increase, it oftens triggers a hard pull on your credit report – inquiries that are noted on your credit report for two years, and are factored into your credit score for a year, according to FICO. Before you apply for a line increase, contact the credit card company to see if they will do a hard pull, to avoid shaving even a few points off your credit score.
Will an increase help or hurt my credit score? A credit-line increase can help your credit score as it will automatically shrink your credit utilization ratio. However, if you quickly convert the increased line to new debt, then your credit score will suffer.
How much more credit do you really want? Do some soul searching and reality checking to figure out how much credit you can actually afford. Larger limits can tempt you into overspending and damage your long-term financial health.
I hope you found these credit tips helpful. Feel free to contact me if you’d like information about your local real estate market.