Makin' money moves (well credit moves, anyway)

March 11, 2022 8:49 AM

I just used a personal loan to refinance my credit cards at a MUCH lower rate. Would now be a bad time to ask for a credit limit increase on one of my cards, to improve my debt to credit ratio?

I just paid off my credit card balances with a personal loan at a much improved interest rate. I only borrowed enough to pay off the cards, I'm not using it for a spree or anything and don't plan to use the cards except for emergencies.

My debt to credit ratio was high before I did this... 48%. It had been much lower but we used one of the cards for a vacation in December. If I understand correctly, paying off the card balances using a personal loan would not have affected this ratio since while I have available credit on the cards, I did not actually lessen my debt (just shifted it from card balances to a personal loan balance.) Is this correct?

Assuming I am correct about that, requesting a credit increase on one of the cards would improve the debt to credit ratio by giving me a larger credit line. However, I am wondering if it will look bad to the credit card company to request an increase right after paying off the balance. Actually, the balance has not been paid off yet as the loan payment has not been deposited yet, so I'm also wondering if requesting the increase now while there still is a balance would be a bad idea?

I'd like to get my credit rate in better shape (it's good, but took a hit from the recent vacation.) So I'm just trying to figure out my best move here.

posted by sock puppy to Work & Money (11 answers total)

Best answer: the balance has not been paid off yet as the loan payment has not been deposited yet, so I'm also wondering if requesting the increase now while there still is a balance would be a bad idea

If your credit is reasonable, then asking for an increased balance with a significant balance is typical behavior. After all, the credit card company is incentivized to have you spend more, so if they think you can pay off a higher balance, then they should give you a higher limit. Further, peoples' spending behavior changes over time. For instance, I spent a period traveling constantly for work, and requested credit limit increases because my balances were increasing significantly and sometimes maxing out before I got reimbursement from my employer.

There's no real down-side to getting a credit limit increase [*], other than potentially being turned down. If you're turned down now, you can likely apply again in six months. I doubt your credit will radically change between now and six months from now, so trying to time the request is unlikely to succeed.

[*] there's a minor exception here for AmEx cards, where credit limit increases sometimes result in financial review of your account and potential closure by the company. However, I've never seen this happen to anyone who isn't in truly exceptional levels of credit risk (ie, having substantially more credit than their income).
posted by saeculorum at 8:56 AM on March 11, 2022

As an aside, after typing this up, I decided to request a limit increase on my primary credit card. I am "only" using ~50% of the limit due to paying my taxes on my credit card, with the ability to pay them off entirely at the end of the statement period. I just received a 10% credit line increase.
posted by saeculorum at 9:01 AM on March 11, 2022 [1 favorite]

Either one is fine.
posted by The_Vegetables at 9:08 AM on March 11, 2022 [1 favorite]

Best answer: There's no real down-side to getting a credit limit increase

Sometimes the card provider will just say sure, and bump the limit up a percentage based on some kind of internal secret sauce math. And sometimes the card provider will say we will need to review this. If they do the review, even if you are approved for the increase, your score will drop a few points because the review involves a hard inquiry.

It's not a big deal, especially in the long run if you're approved for a good limit increase since utilization has a much bigger effect on your credit score, but if you're scrimping for a very specific score in the short term it will impact that.
posted by phunniemee at 9:17 AM on March 11, 2022

"Would now be a bad time" — what’s your underlying goal and how might a higher credit limit get you there, or trip you up?
posted by clew at 9:39 AM on March 11, 2022 [2 favorites]

Response by poster: We may be looking into buying a house in a year or so, and I want my credit to be in good shape. I believe hard inquiries will fall off the report in six months, so from that standpoint now would probably be a good time to ask for the increase. (The reason for the increase is purely to improve our debt to credit ratio.)

My concern is whether I'd be setting off any alarm bells with the credit card company by paying off the card and asking for a higher limit in the same time frame.
posted by sock puppy at 10:12 AM on March 11, 2022

I suggest that debt-to-credit ratio isn't a very useful primary objective to focus on when navigating financial decisions.

If this were me, I'd set financial objectives around maintaining or improving financial health & building wealth toward your longer-term financial goals: ensure income exceeds expenses and that surplus income is used to pay down debt, in whatever form (personal loans, credit cards), focusing on paying off higher interest loans first, then once the debt is eliminated, using the surplus to grow the down payment for the house.

edit: If you're already doing all that, fantastic, I'd suggest focusing energies on financial moves with a much larger impact such as ways to income or reduce your expenses, and ignore trying to game credit lending decisions.
posted by are-coral-made at 10:43 AM on March 11, 2022 [1 favorite]

Best answer: I believe the personal loan will show up on your credit report which the card provider may check, so if you have the loan pending, but haven't applied it yet against your outstanding card balance, that may make your credit utilization appear higher than it actually is to the card vendor, so they may be less likely to grant the increase. Given that, I'd be inclined to wait until you've paid down the card balance, but I'm not sure what factors credit card providers use to assign limits.
posted by willnot at 10:44 AM on March 11, 2022 [1 favorite]

Depending on the card issuer, they may have a button on the website to request a credit line increase. Unless it says it's going to do a hard pull, click the button, be happy that your utilization is now lower. Most of them I've seen offer you a number that you can accept immediately and then give the option to request a larger increase with a hard pull.
posted by wierdo at 10:46 AM on March 11, 2022 [2 favorites]

Best answer: We may be looking into buying a house in a year or so, and I want my credit to be in good shape.

Yes do what you can to get your score increased. I've posted this before but if you have a credit score below 700 (out of 800) the chances that you will be approved for a home loan fall dramatically. 700+ get 80% of home loan money, anything below gets 20%.
posted by The_Vegetables at 11:03 AM on March 11, 2022 [1 favorite]

Best answer: Give it a couple weeks after the loan disperses to the credit card and your balance actually shows at zero. When I did something similar, as soon as the loan cleared and my cards dropped to 0, there was a very quick (maybe a week?)change to my credit score. About 2 weeks after the new credit score posted, the bank automatically increased my credit line on the empty card without my asking. That increase kicked my credit score up another few points and knocked my utilization percentage down a bit.

If they don't do it automatically, then ask.
posted by assenav at 11:07 AM on March 11, 2022 [1 favorite]