Raise the (Fiscal) Roof
February 18, 2011 10:54 AM   Subscribe

How much will requesting a credit limit increase hurt me?

Waaaaay back (2007), I graduated college and wanted/needed a credit card. Even though I was raised to be ridiculously responsible with my money and not to screw around with credit, my dad suggested I start off with a lowball credit limit to encourage Visa to approve me. I filled in $3,000 and was approved without question.

These days life is more...complicated. Girlfriend, fancy toys, unavoidable payments, etc. Visa kindly (*rolleyes*) gave me an increase of $500 once. My monthly bill comes out to under $1,500 (I've never even come close to my limit), and I pay them faithfully each month, but it's a hefty 50% of my credit. After some research, I learned that I may be harming my credit score by having a debt ratio above 10 - 20%. Oops.

At some point in the near future I want to invest in a house, and getting a good loan is important to me.
  1. How much have I hurt my fiscal image by keeping a high debt ratio for four years?
  2. I also learned that requesting a higher limit can also be viewed negatively by banks. Which is the wiser option: continuing as I am with a $3,500 limit, or requesting a limit closer to $10,000 - $12,000 to keep my debt low? Naturally, just because I could spend $10,000 on a card doesn't mean I would...I find it hard to spend a fifth of that.
posted by spamguy to Work & Money (27 answers total) 3 users marked this as a favorite
As long as your debt:credit ratio is under 30% when they check it at the mortgage bank, that's what they go on, not whatever it was for however many years before that. It can take anywhere from 30-90 days for the credit reporting bureaus to update their records to reflect your correct balance amounts, so make sure you pay it down at least a few months before you start applying for loans.

As far as requesting a higher limit, they'll do a "hard" hit on your credit reports to check them out before approving/declining a limit increase, which doesn't usually make a huge difference in your score (I've noticed a difference of less than 10 points in the past). If you're going to request higher limits, do it well in advance of applying for mortgages so that it doesn't look like you're running around grubbing for higher limits before trying to get a big loan (since it makes you look like a higher risk).
posted by scarykarrey at 11:02 AM on February 18, 2011

Also, it's probably more financially advantageous to pay the total debt down to below 30% of your limits, rather than raising your limits so your current outstanding balance is less than 30% of your new limit, since mortgage banks also look at your debt:income ratio when determining your risk, and less debt is always a plus.
posted by scarykarrey at 11:03 AM on February 18, 2011

I also learned that requesting a higher limit can also be viewed negatively by banks.

Anecdata: I requested a higher credit limit about two years ago. I was not immediately denied, but after a second-level review, I was denied. The person at the credit card company said that less than 10% even make it to the second level, most are just denied up front. That being said, I also have a credit monitoring service, and the request never showed a blip on my credit report, and my credit scores stayed in the low 700's before and after.
posted by Mister Fabulous at 11:06 AM on February 18, 2011

scarykarrey: he has 0 actual debt, he's paying the bills in full every month, it's just that his monthly expenditures is more than 50% of his limit.

If you are not planning on doing anything (like applying for a mortgage) in the very near future, raise the limit as soon as you can. Like scarykarrey says, the debt:credit ratio is a one-time look, not an over time thing. And the hit is a temporary one that happens whenever anyone checks your score (which is crap...)

Unlike Mister Fabulous, I've never been turned down for a credit limit increase (I've never carried a balance and have an excellent credit score), I pulled my personal credit card from $2500 to $7500 in smallish increments over a couple years, and my husband and I just raised the limit on our joint card from $2000 to $5000 shortly after buying our house, and it wasn't even an issue, they were just like "yes done".
posted by brainmouse at 11:14 AM on February 18, 2011

Response by poster: Elaboration: I pay my credit card bill down to 0 every month, no exceptions.
posted by spamguy at 11:15 AM on February 18, 2011

Unless your household income is more than $10,000 a month, I think it might be hard for you to get that big of an increase if you are not carrying a balance. I have asked for credit increases about once per year and I have not been denied so far, but our highest total credit limit is only about the same as our monthly income.

I have never heard, anecdotally or otherwise, that asking for a credit limit increase will be "viewed negatively" by banks.
posted by muddgirl at 11:19 AM on February 18, 2011

I mean the highest credit limit on one credit card.
posted by muddgirl at 11:19 AM on February 18, 2011

Oh! That totally changes my answer! Sorry for the misunderstanding.

If you're never carrying a balance for 30 days or longer, I'm guessing that your debt:limit ratio will always be reported as 0%. You can subscribe to a credit monitoring service like myFICO to check it for a few months just to be sure (google for coupon codes), but you've pretty much maxed out the benefit of having a low ratio by paying it off every month.

Unfortunately, never carrying a balance means that you're almost 100% unlikely to qualify for credit limit increases, since credit card companies are pretty much never making money on you and you're a bigger threat to them if you have a huge wad of credit that you could cash in at any time, especially in this financial climate. Mortgage banks don't really like to see you with tons of open credit either, actually, since you could do the same thing right after getting your mortgage and then sink into bankruptcy. Think like a bank: it's all about risk. You're pretty much an excellent risk right now.
posted by scarykarrey at 11:29 AM on February 18, 2011

(Again in contrast to muddgirl, my monthly income is $3000 pre-tax, and I had absolutely no issue getting my personal credit card up to $7500... and actually I raised it to that when I was a (paid, sciences) grad student with a yearly income of $22,500 -- like you I never had any balance).
posted by brainmouse at 11:31 AM on February 18, 2011

When was the last time you receive a limit increase, brainmouse? It's my understanding that, while card-issuing companies were more apt to freely hand out increases before the economic downturn, they're now being much more strict, and are in fact lowering limits on people with perfect payment histories because they're trying to limit their risk.
posted by scarykarrey at 11:33 AM on February 18, 2011

Mortgage lenders care a lot more about how much you owe than they do about how much you're able to owe. They don't want you to have to choose between paying them back and paying someone else back.

The difference that this will make to your credit score will be pretty trivial. And for getting a mortgage, there are a lot of other things that lenders care about besides just your credit score, like your income, savings, delinquent accounts showing on your credit report (regardless of score), etc.

Basically, my opinion is that whether or not you get a credit card limit increase will have essentially no bearing whatsoever on whether or not you can get a house.

However, if you call up your credit card company and ask that the limit be raised, and they say no, nobody else will ever know and it wont hurt your credit score, either (this information wont appear on your credit report).
posted by tylerkaraszewski at 11:51 AM on February 18, 2011 [1 favorite]

If you are particularly worried then try switching to using a debit card for a month. Your debit:limit ratio will drop to zero and you can see what effect that has on your credit rating. I don't really know how the landscape has changed lately but it may be easier to get a new credit card (preferably through a credit union rather than a baby eating large bank) than it is to get a credit line increase. That would also raise your credit limit, lowering your ratio.
posted by ChrisHartley at 12:16 PM on February 18, 2011

How about applying for a second credit card? If you're able to avoid the temptation of spending more than you can afford, getting another credit card might be a good idea.

I don't make much money, but I have several credit cards and have never been denied credit. I pay the entire bill each month, never carrying a balance. I'm not sure how much of a difference it makes, but I have a very high credit score and a very low credit utilization percentage.

As an added bonus, you can get some cash back to make the new card more worth while.

One caveat, if you plan to buy a house or finance a car in the next few months, you might want to hold off on getting a second card.
posted by parakeetdog at 12:32 PM on February 18, 2011 [2 favorites]

scarykarrey - for another datapoint, I seem to have had an uncommon experience with credit increases:

I use AmEx, and pay off my card in full every month. I started with a measly limit, asked for a 75% increase once and was approved. Later that year, they almost doubled my limit WITHOUT my asking - it's now over twice my monthly income, which isn't tons, since I'm a grad student. Both increases came after the economic downturn.
posted by Metasyntactic at 12:33 PM on February 18, 2011

Metasyntactic, I was about to come in a give my version of your same experience.

About a year ago, I asked for a 50% increase of my Discover card limit to ensure I could cover some (reimbursed) travel expenses for work (free rewards cash!). Then about 4 months ago they almost doubled my limit without my request as well. My limit is now about twice my monthly income.

The unexpected limit increase was after I'd made a large purchase, so I figured it had something to do with that. Not sure of their logic though, since I have never carried a balance on the card.
posted by theRussian at 12:47 PM on February 18, 2011 [1 favorite]

Awesome! It's good to hear they're loosening their belts again. I got bumped down to a lower credit limit within the last year, despite my stellar payment history (although I do carry a nominal balance), so maybe I should call my own bank and ask for an increase.
posted by scarykarrey at 12:58 PM on February 18, 2011

About a year ago, I asked for a 50% increase of my Discover card limit to ensure I could cover some (reimbursed) travel expenses for work (free rewards cash!). Then about 4 months ago they almost doubled my limit without my request as well. My limit is now about twice my monthly income.

Anecdotally, as well, my Discover card's limit seems to get upped whenever I pay down a large balance on another card, or do something like open a store credit card. Over five years, it's gone from a $2500 limit to a $7500 limit without my asking. However, this has never happened with my Visa card.

I'd also look into a second card, mostly so that you can maximize your credit card rewards (as you likely qualify for a better rewards card now).
posted by PhoBWanKenobi at 1:42 PM on February 18, 2011

True story: my credit card # was stolen in an ecommerce hack, and was used to buy a racehorse in Europe. Bank of America assumed I was there, and raised my limit by another 20k or so. Then it occurred to them to call me, and ask if I'd just bought a horse. When I pointed out that I'd answered the home number they called, which meant I wasn't in the south of France buying a pony, they issued a new card, but never changed the limit. Theoretically, I could buy a nice car on plastic.

I just bought another house, while listing my previous one. The fact that I have a spooky line of credit, because I pay my bill in full every month, it wasn't a ding against me like it would be if there were balances on it.

So, go to the branch office, talk to the branch manager, and they should raise your limit easily.

Separate issue: pay off your bill each month, and you have a 0% high risk challenge to a mortgage application. Your card *limit* has no bearing on your app if there is no carry over balance.

Pro tip: get a second card. Even if you never use it, don't put all your credit eggs in one basket.
posted by dejah420 at 2:47 PM on February 18, 2011

Oh yeah, totally agree - I have three credit cards

(1) "student card" with a low credit limit and no rewards, but which established my credit history

(2) Rewards Amex for personal use

(3) Rewards Visa for both my spouse and I to use

I'm pretty sure that when it comes to credit scores, they look at your combined credit vs. balance - so my three cards have a combined limit that's much higher than I could spend in one month. (Contrary to what others have said, even though I pay off my cards in full each month, they still seem report my monthly balance to the credit agencies - I suppose if I paid them off in-full before the bill was due then it would record a $0 balance - this could be dependent on the type of card)
posted by muddgirl at 2:54 PM on February 18, 2011

Your credit limit supposedly counts in a number of ways, which balances out to simply: higher limit means higher credit rating. If other companies have extended you credit and you haven't run it up to the limit, you seem more responsible to the next company.

There IS a point at which a number of high limits can hurt you- if you maxxed everything out, would your monthly minimum payments be more than your income? If you are in that situation, it could be seen as bad. Especially if you are already carrying a balance.

Also, I don't think asking for a higher limit is bad, unless you are already carrying a balance near the max. Then it looks like you are in over your head.
posted by gjc at 4:14 PM on February 18, 2011

I pay my credit card bill down to 0 every month, no exceptions.

That alone doesn't tell the story. What they care about is the percentage of credit used on the day they pull your report. So if you have $1500 on your card on the day they pull your report, you have utilized 50%. It doesn't matter that you pay it off at the end of the month.

Some things you can do are to pay off your total balance right before your credit is checked. Note that the total balance is more than just what you get on your monthly bill. Because of the grace period, your bill only covers charges up to 20 days ago. To get your real balance, including recent charges, you have to look it up on line.

Or you can raise you limit to lower your percentage of credit used.

Or you can use a debit card in the month before your credit check which is like using cash.
posted by JackFlash at 4:49 PM on February 18, 2011

Uncanny. I just asked like this exact question on another site yesterday. As an anecdote, I called up Discover last month for a bump from 2k to 5k, for exactly the same reasons as you. They haven't offered me any uninvited credit limit bumps, but they do offer me like 15k in balance transfer loans, so they must like something about me.

They will do a credit score pull. It's a small hit but not a big deal in the timeframe you're considering.

On to the numbered questions:
1. Credit reports only contain payment history and current information. AFAIK, this means your debt utilization falls as soon as it's reported to the agencies.
2. Between the options, I'd say ask for the credit limit bump.
posted by pwnguin at 4:57 PM on February 18, 2011

I would consider getting a second card for occasional use. Aside the from the advantage to your credit score, I have had occasions where it really helped. 1 - someone stole cc numbers from a vendor database. My cc company helpfully cancelled my card and put a new one in the mail. Until I received it, I did not know my new account number and had no physical cared to use. 2- we bought a very expensive, hard to find item. There was a problem, we returned it for a refund. However, while waiting for the return to arrive at the company and get then get processed and posted to our card, we found a second, acceptable unit from a different source. Couldn't put it on our primary card which still had the original charge on it so we used our secondary card.
posted by metahawk at 7:45 PM on February 18, 2011

ps. It seems to be much easier if you use one those pre-approved offers that you get in the mail than if you initiate the request yourself. I also got a higher credit limited offered to me than I could get when I was the one asking for the card. Just make sure the terms are reasonable.
posted by metahawk at 7:46 PM on February 18, 2011

For what it's worth, few banks update the balance with the credit bureaus more than once a month, and they usually do it when your statement cuts. This means that even if you pay off your balance in full each month, you will show a balance on your report, and if you pay it off, it won't be reflected for a while, so paying it off today and applying for credit tomorrow does no good.

A few banks will honor requests to push an update to the bureaus, and that will usually happen within a couple of days.

Also, Amex is always two months or so behind in my experience, both with the reported balance and the reported credit line (for credit cards, their charge cards don't report a credit line)

If I were in your position, I'd be looking for a second (and third!) credit card. This is good for two reasons. First, it's handy to have a backup if one of your banks should have a problem that prevents you from making charges or if there is some sort of dispute or if they go stupid on you and you have to close the account. Secondly, it is (or was at one point, when Fair-Isaac disclosed parts of their model to Congress some years back) better for your score to have multiple cards.
posted by wierdo at 12:29 AM on February 19, 2011

Don't creditors report the data in an aging format? $X is < 30 days old, $Y < 60 days old, $Z > 60 days?
posted by gjc at 5:38 AM on February 19, 2011

Everyone here is grossly overthinking this. Just apply for a new card with a limit of several thousand dollars. You can try asking for a large increase on the current card and that will likely be successful as well.
posted by iknowizbirfmark at 10:04 PM on February 20, 2011

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