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When Should You Raise Your Credit Card Limits? You know that one of the fastest ways to increase your credit scores is to simply increase the credit limits on your credit cards. But how and when do you ask for credit limit increases? There's a right way to do it and a wrong way Increasing Your Credit Limits Can Decrease Your Credit Scores What you may not know is...when you ask for your credit limits to be increased, your credit scores can actually go down. What? It's true. The type of credit inquiry the lender makes when you ask for a higher credit limit is the type that lowers your credit scores. I found this out the hard way a few years ago when I asked for a credit limit increase on one of my credit cards. I received the limit increase...but I also received an unexpected surprise...a credit inquiry that lowered my scores. I don't like unexpected surprises...especially ones that lower my scores. How do I know the inquiry lowered my scores? Simple—I reviewed my FICO credit scores just before I applied for the increase. (It's a habit I have...you should get into that habit, too.) Then I reviewed my credit scores afterward—and they were lower. But there's an even simpler way for you to find out what effect your actions have on your credit reports. Just subscribe to a good credit report monitoring service and you'll find out the minute something changes on all three of your credit reports. Do You Have Too Many Credit Inquiries on Your Credit Reports? It's kind of unfortunate, but the number of credit inquiries that you initiate is an indicator of how risky you are to a lender. So what's the work around? How can you shop for credit without being penalized? Here are some options... 1. Don't ask for credit limit increases. Be satisfied with the periodic credit limit increases that your lenders give you. This is my least favorite approach. It's too passive. When it comes to improving your credit, you need to be proactive. Besides, some lenders may never give you an increase unless you ask for it. 2. Ask for the increases and live with the credit inquiries. This is a step in the right direction, but you can do better. 3. Minimize the effects of the credit inquiries by applying for credit limit increases only on credit card accounts where you stand to gain the most FICO score points. So, how do you do this? Simple. Use the new free Increase Your Credit Limits Spreadsheet. Enter your credit limits and balances on each of your credit cards and it will let you know whether it's beneficial to ask for a credit limit increase at this time. Go here to download it right now. Obviously, when I talk about increasing your credit limits I'm referring to credit cards or any account that your monthly payment varies based on how much your balance is. In addition, the accounts must be unsecured...as opposed to secured credit card accounts where you deposit money in advance and the balances become your credit limits. Usually, the best way to increase your secured credit limits is to simply increase the amount you have on deposit—assuming you haven't already reached the maximum deposit allowed for the card (more on this in a future issue). Account Review Credit Inquiries Don't Lower Your Credit Scores Here's how it works... Lenders periodically "review" the accounts on your credit reports to determine if they should: 1. Renew your accounts 2. Close your accounts 3. Increase (or decrease) your credit limits 4. Increase (or decrease) your interest rates This is a part of their normal course of managing your account. Most big lenders will do this either monthly or quarterly. It's called an account review. The good news is—an account review inquiry will not lower your credit scores, because you didn't apply for credit. Since you didn't initiate the inquiry, it won't affect your credit scores. Now, let's explore a myth... Do Unused Credit Limits Hurt Your FICO Credit Scores? No. Many times, I hear people giving advice that you should use as much of your credit card limit as possible. That's not a good strategy. The truth is—the higher your credit limits and the lower your balances are, the higher your FICO credit scores will be. Your strategy should be to have the highest limit and the lowest balance possible. Rest assured, if you have a $1,000 credit limit on one of your credit cards and you increase your limit to $2,500—the unused $1,500 in no way hurts your FICO scores.
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