Does requesting a credit increase hurt your credit score?

Requesting a credit increase can result in a hard inquiry, which may temporarily lower your credit score by a few points. However, if approved, a higher credit limit could improve your credit utilization ratio, potentially boosting your score over time.

In this article, we’ll explore how requesting a credit limit increase can impact your credit and what to consider before making the request.

Do credit card limits increase automatically?

Yes, credit card limits can increase automatically if you demonstrate responsible usage, such as making on-time payments and keeping a low credit utilization ratio. Many credit card companies periodically review accounts and may offer a higher limit without a request.

However, some issuers require you to request an increase, which may involve a hard credit inquiry.

How does applying for a credit limit increase affect your credit?

Applying for a credit limit increase can be a strategic move for managing your finances, but it can also have implications for your credit score. Understanding how this request can impact your credit is essential for making informed decisions.

In this article, we'll explore the potential negative and positive effects of applying for a credit limit increase.

Does a credit line increase hurt your credit?

When you apply for a credit limit increase, the credit card issuer may perform a hard inquiry on your credit report. This hard inquiry can potentially lower your credit score by a few points. A hard inquiry occurs when a lender reviews your credit report to make a lending decision. Each hard inquiry can lower your score slightly, typically by less than five points. However, multiple hard inquiries within a short period can have a more significant impact.

If your request for an increase is denied, your credit utilization ratio remains unchanged. High credit utilization, which is the amount of credit you’re using compared to your total available credit, can negatively affect your score. It's important to note that the negative effect of a hard inquiry is usually short-term. Your score may bounce back within a few months, especially if you continue to manage your credit responsibly by making timely payments and keeping your balances low.

Can a credit limit increase help your credit score?

On the positive side, a credit limit increase can significantly improve your credit score, primarily by lowering your credit utilization ratio. When your available credit increases while your balance remains the same, your credit utilization decreases. Credit utilization is a crucial factor in determining your credit score, and a lower utilization rate typically leads to a higher score.

Moreover, having a higher credit limit can also provide you with more financial flexibility and reduce the risk of maxing out your credit cards, which can further protect your credit score. It's also worth noting that a higher credit limit can positively impact your credit profile by demonstrating to lenders that you are a responsible borrower capable of managing more significant amounts of credit.

How credit limit increases affect your credit utilization score

A credit limit increase can positively impact your credit utilization score, which is a significant factor in your overall credit score. Here’s how:

If your spending remains the same, it lowers your credit utilization ratio

Credit utilization ratio is the percentage of your available credit that you're currently using. The formula is: (Total Credit Card Balances / Total Credit Limits) x 100.

For example, If you have a $5,000 credit limit and a $2,000 balance, your utilization is 40%. If your credit limit increases to $10,000, and you keep the same $2,000 balance, your utilization drops to 20%, improving your creditworthiness.

A lower credit utilization ratio can improve your credit score

Credit utilization accounts for 30% of your FICO score, so a lower utilization rate (preferably below 30% and ideally under 10%) boosts your score, improving your likelihood of having good credit.

A higher credit limit helps maintain a low credit utilization rate, even if you occasionally charge more to your card.

When should I submit a credit increase request?

Requesting a credit limit increase can be a strategic move, but timing it correctly can make a significant difference in your financial health and credit score. Here are some optimal times to consider asking for an increase.

After a significant revenue increase

If your business has recently experienced a substantial increase in annual revenue, it’s a good time to request a credit limit increase. Lenders are more likely to approve your request if they see that your business is generating higher income, as it indicates a greater ability to repay borrowed amounts. An increase in revenue also means that your business can manage a higher credit limit responsibly.

When your credit score has improved

An improved credit score signals to lenders that you are a responsible borrower. If you’ve been working on improving your credit score by paying bills on time, reducing debt, and correcting any errors on your credit report, you’re in a strong position to request a credit limit increase. A higher credit score increases your chances of approval and can result in a more substantial increase.

Before making a large purchase

If you anticipate a significant expense, such as an office relocation or a major purchase, requesting a credit limit increase beforehand can be beneficial. This can help you manage the expense without maxing out your current credit limits, which can negatively impact your credit utilization ratio and, consequently, your credit score.

After demonstrating responsible credit use

Lenders look favorably on borrowers who demonstrate responsible credit behavior. If you’ve consistently paid your bills on time, kept your balances low, and avoided late payments, you’re showing that you can handle credit responsibly. This track record makes it a good time to request a credit limit increase, as lenders will see you as a lower risk.

When you haven't applied for new credit recently

Frequent applications for new credit can negatively impact your credit score and make lenders wary of approving additional credit. If it’s been a while since you last applied for new credit, it’s a good time to request a credit limit increase. This gap shows lenders that you’re not desperate for credit and are managing your current credit well.

By timing your request for a credit limit increase during these optimal periods, you enhance your chances of approval and minimize potential negative impacts on your credit score.

Access higher credit limits with a Ramp Business Credit Card

At Ramp, we can offer credit limits up to 30 times higher than traditional credit cards. That’s because we use factors like sales data and cash in the bank to determine spending limits, instead of running a credit check. To qualify, all you need is one year of sales data.

Ramp is a with built-in spend management tools that help you optimize spending, allowing you to grow your business. You can give your employees spending power with custom rules and limits—alleviating the need for costly employee reimbursement programs.

Track every expense you have in real time. You can even analyze spending by department, vendor, location, and more.‍ And through our automatic categorization and integration with accounting platforms like QuickBooks and NetSuite, you can close your books 8 days faster on average.