A credit card doesn’t have to be the piece of plastic you hide in the back of your wallet for emergencies only. In fact, with a store card from DSX your revolving credit can help be an amazing financial tool. The majority of people have a high utilization ratio on there revolving debt causing there scores to show them as high risk. Just think if you are maxed out on $3,000 you have negatively impacted the second largest factor of your credit score. in fact credit utilization ratio, amount owed vs credit available, makes up 30% of your overall credit score. If you suddenly have a new creditline with a $6,000 your ratios can go from 100% utilization all the way down to 33% utilization. This helps the credit scoring system see that you have the ability to spend yet discipline not to overspend. This traditionally can make a monumental increase on ones credit score.
Feel free to read below on some fun facts on credit, or shoot us a message to learn more about how a new revolving credit line can increase you or your clients credit score in less than 30 days.
Your credit limit alone doesn’t affect your score, but the way you use it can. Mike Sullivan, a personal finance consultant and previously the director of education at Take Charge America, a national nonprofit credit counseling and debt management agency, says, “Your credit limit represents the amount of available credit you have. By itself, it doesn’t have much impact, but the amount you owe represents your utilization, and that can matter a great deal.”
Credit scores consider both the utilization rate on each individual credit card as well as your total credit utilization across all accounts.
Rod Griffin, director of public education for the credit bureau Experian, says, “A good rule of thumb is to always keep your utilization rate below 30 percent. However, the lower your utilization rate, the better. … While a high credit utilization rate can be a sign of financial distress, a low credit utilization rate shows that you’re using less of your available credit.”
Griffin says credit scoring models will interpret low utilization to mean you’re doing a good job of managing your credit and keeping spending in check. And considering that credit utilization makes up about 30 percent of your overall FICO score, it’s definitely a factor to take seriously.
Although people are often wary of ways they can accidentally hurt their credit scores, increasing your credit limit is actually an easy way to improve your score.
“Increasing your credit limit immediately decreases your utilization,” says Sullivan. For instance, consider the example from above. If you increased your credit card’s limit from $1,000 to $2,000 and left your $600 balance untouched, your utilization would immediately drop from 60 percent to 30 percent. That could have a significant effect on your score.
Of course, this only works if you keep your balances low. “For some people, higher credit limits could represent the temptation to spend more,” says Griffin. If your spending increases along with your limit, you won’t reap the benefits of a higher credit limit. In fact, you could end up increasing your utilization ratio if you’re not careful.
“In general, the best way to improve your utilization ratio is to pay down your credit card balance and then keep it as low as possible,” says Griffin.
Although a credit limit increase is generally good for your credit, requesting one could temporarily ding your score. That’s because credit card issuers will sometimes perform a hard pull on your credit to verify you meet their standards for the higher limit.
“Card issuers each have their own criteria when evaluating a request for a higher credit limit,” says Griffin. “Some lenders may check your credit report before approving any increase, while others may not.” However, according to Griffin, the impact is “minimal.” Hard credit pulls generally knock your score by five to 10 points and stay on your credit report for two years.
How to Ask for a Higher Credit Limit
If you’re ready for a credit limit increase, you might be surprised to find that your card issuer already granted you one. It’s not unusual for issuers to increase credit limits periodically as a reward for spending responsibly and paying your bill on time. Griffin says, however, that most major card issuers will not automatically raise your credit limit until you have at least six to 12 months of on-time payments and haven’t exceeded your credit limit.
If you haven’t received an automatic increase, usually all you have to do is ask. “Creditors usually don’t mind increasing credit lines,” says Sullivan. “In fact, they welcome it if they believe you will use it and pay.”