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Do you know what the credit limit(s) is/are on your credit card(s)? Whether you’re close to maxing out your cards or you never come close to reaching the limit, it’s important to know where you stand, because the percentage of credit you have available can impact your credit score, for better or worse.

What's a Credit Limit?

When you’re approved for a credit card, you’ll be given a pre-set limit of how much money you can put on the card. Keep in mind that you’ll be charged interest on your purchases if you don’t pay your bill in full each month. If that balance creeps up, the interest can push you above your limit.

Credit Utilization and Your Overall Credit Health

There are times when it can be easy to pull out your credit card to buy items you want or need. If you pay that debt off each month, it won’t negatively affect your credit. However, if you keep a balance on one or more cards, it can start to reduce your credit score due to a high credit utilization. Credit utilization is the sum of the debt you have on all your revolving credit—essentially, your credit cards and lines of credit—divided by your limit. Many experts recommend to keep credit utilization below 30%, but lower is always better since it’s an influential part of figuring your credit score.

Why Would I Want to Increase My Limit?

There are several reasons you may want to consider asking your creditor for an increase, including:

  • When your credit has improved. If you got a credit card at a time when your credit was on the low side or just starting out, chances are your limit is small. If you feel your credit has improved, now may be an appropriate time for an increase.
  • When you want your credit to improve. As mentioned before, a high credit utilization can hurt your credit. Increasing your credit limit would reduce the utilization numbers and possibly increase your credit score, provided you don’t increase your balance as well.
  • When you need to buy a big-ticket item. Should you need to cover a larger expense that you’d like to budget for and pay off over time, such as a new water heater or vet bills, a credit limit increase can be helpful. If you’ve been diligent in paying your credit card bill, your creditor may approve an increase that can take the stress off your purchase.

What to Know Before You Ask

It could cause a temporary drop in your credit score. Although an increase in your credit limit ultimately may help your credit score, creditors will likely review your credit history when considering you for an increase. That review can be performed via a “soft inquiry,” which doesn't affect your credit score; in some instances, it could create a "hard inquiry" on your credit history, which could temporarily lower your score. If you continue good credit habits, including paying your bills on time and keeping your utilization below 30%, it should come back up.

Make sure a higher limit won’t cause too much temptation. Whether you’re asking for a limit to help increase your credit or another similar reason, be careful that you don’t overspend once your credit is increased. Being unable to make payments or keep your utilization level low could cause long-term problems you didn’t intend on facing. Be mindful that those are the two most important factors in credit scores.

Items Taken Into Consideration

When you ask for an increase, the creditor will usually take the following into account before making their decision:

  • Account age and standing
  • Time since last increase request (avoid asking frequently; space out your requests)
  • Annual income
  • Employment status
  • Payment history

In some instances, the company will ask you how much of an increase you’re asking for. Be realistic in order to increase your chances of approval. Once you’ve asked, you’ll usually get an answer quickly—sometimes even instantly if you apply online or through your bank’s mobile app.

Understand Your Credit

Navy Federal can help you take control of your credit and manage credit wisely. Read up on everything you need to know about credit scores as well as myths that can drag down your credit. If you’re a Navy Federal primary card holder, you can check your FICO® Score for free.

This article is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.