American express increase credit limit hard pull

Credit Card Limit Increases Carry Risks and Rewards

American express increase credit limit hard pull

As your income and expenses grow, you may find that the spending limit on your credit card or cards just isn’t enough to meet your needs. One solution is to ask your card issuer for a credit limit increase. But like most credit card features, a limit boost comes with some downsides. Here’s how to sort out the pros and the cons.

A larger credit line can grant you more flexibility with your finances, and it might just help your credit score, too.

More spending power: Perhaps you’d like to pay most of your bills on one card, but your current limit can’t support it. Maybe you’re trying to make a large purchase but are being blocked by your spending ceiling. Extending your credit limit means more power to use your card to pay for goods and services and to reap rewards such as cash back.

Lower credit utilization ratio: More often than not, a higher credit limit means a lower credit utilization ratio, and that can improve your credit score. The credit-scoring firm Fair Isaac Corp., known as FICO, evaluates your overall credit utilization two ways:

  • Per-card utilization: (amount owed on an individual card) ÷ (credit line available on that card)
  • Aggregate utilization: (sum of owed amounts on cards) ÷ (sum of all credit lines)

FICO looks at both numbers as part of the “amounts owed” component of its scoring, which makes up 30% of your overall score. If you maintain the amount of credit in use and expand the amount of credit available with a line increase, your credit utilization will go down and your score will typically go up.

More credit is not always better. Consider these potential disadvantages to asking for a credit line increase:

Hard inquiry on your credit report: Before credit card issuers can decide on a line of credit increase, they often “pull” and evaluate the applicant’s existing credit. Credit inquiries can either hurt your credit (hard pull) or leave it unaffected (soft pull). Hard pulls typically occur when someone applies for a loan, a credit card or a credit line increase. Too many of these inquiries strung together in a short period can cause a temporary credit score reduction.

If you suspect you’ve recently had a hard pull of your credit, you may want to wait before asking for a credit line increase. Credit issuers don’t always pull your credit when considering a line increase request, so call your issuer to find out whether it does.

It could lead to more debt: Getting approved for a larger credit line does mean more spending power, but it could also mean getting deeper into debt. If you have the ability to spend more, you just might spend more than you can afford to pay off, thus racking up interest charges. This is where self-control and organization are key.

Creating and adhering to a budget is a great way to control credit card spending while evaluating monthly expenditures overall. A wise rule of thumb is to never spend more than you can pay off that month. Not paying on time can lead to late fees and potentially ding your credit score in the process.

As with most financial decisions, if you’re thinking about asking for a credit line increase, it’s important to weigh the costs against the rewards. If have good credit and you’re a responsible spender, extending your credit limit shouldn’t be a problem and it might even be beneficial to your finances.

Why to Ask For a Credit Card Limit Increase, Even If You May Not Need It

American express increase credit limit hard pull

If you’re using more than half of your limit on your credit card every month—and paying it off with no problems—it may be worth asking your issuer for an increase. Why? Because a bigger limit could boost your credit score as long as you maintain the same level of spending.

Your original limit is based on your credit score when you opened the account and on the limits you have on other credit cards. “It tends to be a hard formula,” says Bill McCracken, president of Phoenix Synergistics, a marketing research firm for the financial services industry. “(Issuers) plug in some numbers on credit history, available credit, what you have been approved for beforehand and a number spits out.”

At that point, issuers are less receptive to any requests for an increase, McCracken says. So, if you’re unhappy with the limit, sit tight. If you make timely payments, your issuer will automatically increase your limit between 15% and 20%, 12 to 18 months after you opened the account, says McCracken, along with possible annual automatic increases after that.

If your credit card limit is still not as high as you’d like—even after automatic increases from your issuer—then you can request a larger one. Your request has a better chance of being approved if you have a mature account and you’ve made on-time payments, whether they’re minimum payments or the entire balance. It’s even better if these payments make it to the issuer a few days before the due date, says McCracken. That will show the issuer that you’re a consistent early payer and it may be more open to a limit increase.

Have a specific amount in mind and a reason for your request—such as a future big purchase—when you ask your issuer for an increase. You can change your mind and forgo the large purchase, but the new, larger limit will be set. Otherwise, the issuer may fall back on its 15% to 20% increase if you don’t request a specific amount. “The issuer won’t triple your limit but they can do a 50% bump,” McCracken says.

Issuers often can grant smaller increases without any additional steps. But larger ones that exceed the automatic increases may require a credit check, says John Ulzheimer, credit expert who formerly worked at FICO and Equifax. “They are basically underwriting the card again,” he says. “Because you are asking for terms that are completely different than what you originally had.” This is considered a hard credit inquiry since you initiated the request for more credit. That means your credit score will likely take a slight hit following your request. But in the long run, your credit score could benefit from the limit increase, provided that your spending doesn’t increase as well.

That’s because a larger limit will lower your utilization rate, the percentage of your available credit that you use. The lower that rate is, the better. For instance, if you regularly charge $500 on a card with a $1,000 limit, then your utilization rate is 50%. But if your limit increases to $2,000, then your utilization rate immediately drops to 25%. It’s recommended to keep your utilization rate below 30% to help your credit score.

“This is actually a longer-term strategy that people employ to help their credit score,” says Ulzheimer. “They ask for increases in credit limits and keep their spending levels the same.”

Of course, if you start charging more with your new limit, your score won’t move or go down if you spend too much. You also have a larger outstanding balance to pay off.

You might be able to avoid a hard credit inquiry if you ask your issuer for a slightly bigger increase soon after you were granted an automatic one. In that case, your issuer may have conducted a soft credit inquiry—one that doesn’t affect your credit score—as part of its regular account review and won’t need another check to approve the increase.

Otherwise, avoid asking for a hike if you plan to apply for a mortgage or auto loan in the near future. A ding to your credit score, even a small one, could be enough to warrant a higher interest rate on those loans. Also avoid requesting credit limit increases from all your issuers at once because each will pull your credit, hurting your credit score even more.

You can also request a decrease in your credit limit. Your issuer won’t pull your credit report for the reduction, but the decrease could raise your utilization rate and hurt your credit score, if you don’t also reduce how much you charge on the card. On the plus side, you will still be able to build a credit history with the card, but with less risk of piling on too much debt.

A decrease may be best for someone with limited income who is just starting out with a credit card and doesn’t want the temptation posed by a relatively high limit. “Maybe when someone is younger with a part-time job or going to school, a (smaller limit) provides a bit of an emergency brake on spending,” says McCracken.

6 Expert Tips: Increase Your Credit Limit (Get Approved Now)

American express increase credit limit hard pull

By: Ashley Dull • May 22, 2017

Opinions expressed here are ours alone, and are not provided, endorsed, or approved by any issuer. Site may be compensated through the issuer affiliate programs.

First and foremost, ask yourself why you want to increase your credit limit. If it’s to go on a shopping spree or purchase things you can’t afford without credit, stop right there. You’ll need to have proven to yourself and the bank that you know how to use credit responsibly in order for them to approve you.

This means that you’ve exemplified yourself as a good customer for at least 6 months. If your cards are maxed out, you’ve been late making payments, or you’ve even missed payments, your chances of approval are slim to none.

With that said, if you are indeed one of the wise consumers who’s followed the golden rules of credit card usage, here are 6 tips for getting your credit limit increased:

Sometimes, applying for a new card altogether is the simplest option. You can choose a credit card company, apply, get your new card and be done — or you can apply for a new card with your current lender and, once approved, reallocate a portion of your new credit line to the card you originally wanted to be increased. Yes, you can do this, assuming you have better-than-average credit, and it can get you significantly more than you originally requested.

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Pick a card in your wallet you want to have the limit increased on. Don’t assume if you ask all of your credit issuers that your chances of being approved are greater.

American express increase credit limit hard pull

Choose one card to request an increase on.

When you request an increase, the issuer will need to pull your credit history to see if you’re creditworthy.

This credit pull will be noted on your credit report and will slightly lower your credit score. If multiple issuers are pulling your report, it won’t be so slight. Not only that, the issuers will be able to see that other issuers are reviewing you as well, meaning you’ll come across as desperate for money. This is a red flag in the eyes of credit companies and can easily hurt your chances for approval.

Remember: Banks like to loan to people who don’t really need money. This leads us to our next tip:

If you call the credit issuer crying that you have an emergency you need money for and think your sob story will make them empathize with your situation and up your limit, think again.

Don’t tell them why you need it, tell them why you deserve it. Here are some good reasons why:

  • You’ve been a loyal customer for X years/months and have never missed a payment. (Don’t ask for an increase if you’ve been a customer for less than six months.)
  • You pay your balance in full each month or
  • You always pay more than the minimum balance
  • You’re utilizing 30% or less of your current limit
  • Your payments are always on time
  • Your income has recently increased

And remember, being kind to the person on the other end of the phone can also help — they’re just doing their job, so don’t take your financial frustration out on them.

Asking for too much of an increase can be seen as yet another red flag, which may cause you to be denied and you’ll have to wait a few more months to reapply.

American express increase credit limit hard pull

Expect an increase of 10-25 percent.

Don’t ask the representative how much you should request, either. Credit card companies prohibit their employees from providing this advice to you. There’s a not-so set-in-stone standard that says 10 to 25 percent is a good percentage to aim for, so if you have a $1,000 limit, expect to see up to an additional $250 or so made available to you.

This is not a hard and fast rule, however — those with good credit histories can receive substantially more and every situation is different. If you do receive considerably more, don’t let the new credit limit entice you into overspending.

Banks love balance transfers like Joanie loves Chachi. If you don’t know how balance transfers work, all it means is you’re transferring your balance from one credit card to another.

These can be a pretty sweet deal, as many credit issuers nowadays offer zero percent interest on transfers for up to a year or longer. That means you stop paying interest for that time period if you move your balance from Card A to Card B. It’s actually a pretty smart move, financially speaking. This can save you hundreds of dollars.

So what’s in it for them?

  • A balance transfer fee. Check if there is one and the amount to see if it’s worth it. If the fee equals the same amount you’d save, it’s not such a sweet deal after all.
  • If you don’t pay the amount in full by the time the no-interest period is over, the new issuer gets to make the money from the interest they’re now charging you that would have gone to your previous issuer.

If you tell your issuer you want an increase so you can transfer your balance, they’ll likely want to make this work, assuming they can trust you to make the payments (i.e., having a decent credit history).

Credit issuers review accounts generally every six months, and those in good standings will naturally receive limit hikes periodically. Continue to be a good customer by always making payments on time, and if you can swing it, pay the balance in full each month. Be patient, grasshopper — good things come to those who wait!

You’re now prepared to request the credit limit increase you’ve earned by being a responsible consumer.

Understand that a higher limit can easily tempt you to charge more and lead you down a dangerous road. Don’t change your spending habits on a false sense of increased wealth. Continue to use credit for emergencies only, or if you know you can pay the balance in full each month, and always keep your credit utilization ratio under 30 percent.

Editorial Note: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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