A credit score is a representation of your credit history which is expressed in a numerical form. A credit score is used to determine the creditworthiness of an individual. The higher the creditworthiness, the higher will be the credit score. The lower the creditworthiness, the lower will be the credit score. The credit score of an individual is dependent on the usage of the credit limit as a monthly report is sent to the credit bureaus about your credit utilization and credit limit. Now if you maintain a high credit score, your credit card issuer will notify you that you have qualified for an increase in your credit card limit, and upon giving your approval your credit limit will be substantially increased. With an increase in your credit limit, your purchasing power will increase and hence will affect your credit score as well.
Yes, your credit score is affected by an increase in your credit card limit. But a major that arises here is how does an increase in the credit card limit affects your credit score? If you hold a good credit score, your credit limit can basically be increased in two ways – you can request the issuer for an increase in your credit limit or the bank can directly offer you an increase in your credit limit based on your credit score and past credit history. When you receive an offer from the bank, it is not mandatory for you to accept the offer.
Factors That Get Affected By Increased Credit Limit
It totally depends on your will. But if a bank approves your request for an increase in credit limit or you accept the bank’s offer on the same, you should be aware of the fact that any increase in your credit limit will have an impact on your credit score as well. This impact can either be positive or negative. In this article, we will discuss what effects can an increase in credit card limit can have on a credit score:-
Credit Utilization Ratio :
A credit utilization ratio has a great impact on your credit score. It accounts for 30% of your credit score. Your credit score will badly decline if you completely use the total credit available to you. If you have a high limit on your card, but your spending pattern remains the same, then your credit utilization ratio will decrease and will have a positive impact on your credit score. But if you think that your credit limit has increased and you start using your credit card blindly, and at the time of credit card bill payment, you are unable to pay your bills, then it will have a negative impact on your credit score.
That is why it is prescribed by experts to keep your credit utilization ratio below 30%. It should not change with an increase in your credit limit. And even if you are using it more than 30%, you should have enough amount available with you so that you can pay the credit card bill when it gets due and it does not impact your credit score in any way.
An increase in a credit card limit is a two-faced game. On one hand, where it can help you in increasing your credit score, and on the other hand, it can decrease your credit score as well. Whenever you request your credit card issuer or the issuer itself offer you an increase in your credit card limit, that is generally on the basis of your credit score. Checking your credit score time and again is a hard inquiry and may lead to a decline in your credit score. Although this impact lasts for a short period of time, it surely does have an impact on your credit score.
Bottom Line :
From the discussion above, we can infer that an increase in credit limit is beneficial for only those people who know how to use a credit card wisely without impacting their credit scores. If such an offer is provided to a person who spends recklessly, he is surely going to have a negative impact on his or her credit score. Even if you accept an increase in your credit limit, you should make sure to keep your credit utilization ratio below 30% and if used more than 30%, be responsible enough to pay your bills on time so that an increase in your credit card limit does not have an impact on your credit score.