Is a higher credit limit always better? It depends (more on that later), but you might be surprised to learn that the average American has about $22,750 in credit available to them right now across all of the credit cards that they have in their wallet.
This $22,750 number is according to a 2019 study conducted by Experian, one of the three major credit reporting bureaus. As you know, your credit limit is the maximum amount that you can charge at a time before your cards become maxed out and you might face a penalty.
The higher your credit limit, generally the more trustworthy of a consumer you are. Think of it this way — credit card companies will typically raise your limit for a few reasons. One, they want you to be able to spend more with them and make more money off you in interest. Or two, you have a great credit score and raising your limit is their way of saying “good job” and making sure you stick around. If you want your credit limit increased, you may also be able to ask for it. We’ll go over some of the pros and cons of doing so here.
So, should you ask to have your credit limit raised?
Usually if a credit card company offers to raise your credit limit, it’s because you’re doing all the right things. Therefore, increasing your limit won’t typically have any sort of negative effect on you or your credit score. But if you ask to raise your credit limit, it could impact your credit score — and in a positive way. That’s because raising your credit limit could be decreasing your overall credit utilization ratio, which is the credit card debt you racked up relative to your total limit.
For the best possible credit score, you want this utilization ratio to be at or under 30 percent. So, for example, if you have a $3,000 limit and have $1,500 in debt, you’re over that 30 percent ratio, and your credit score will suffer because of it. But if you can have your limit increased to $4,000, then you get under that 30 percent number and your score will benefit.
Rather than asking to increase your credit limit, we always suggest keeping your credit utilization ratio in check. If you do, then the credit limit increase will come naturally. If you insist on asking for the limit yourself, be prepared to answer some questions when you contact the credit card company to enter the request. For instance, you’ll have to disclose your annual income, employment status and housing costs. While it is possible to apply for a limit increase on the credit card company’s website, it’s always best to contact them directly and speak with someone.
So, could you benefit from a credit card limit boost? Are you at or near the national average when it comes to credit limit? Be sure to weigh the pros and cons before taking action.
I have 3 cards with American Express. While other credit card banks were raising limits at the start of the pandemic and banks were deferring loan payments American Express cut my limits on 2 cards in half causing my scores to plummet from mid 700’s to mid 600’s. This in spite of the fact that I have been a customer since 1977 and I have never been late. My credit report shows no derogatory and 100% on time on all my accounts.
Their motto is “Don’t leave home without it” Mine is “Leave it at home” I have since replaced the lost credit limit loss with Master card. They are not the only game in town.