I recently overspent and found myself in an unfortunate situation of needing more credit. And so, one of the great debates of credit management reared its head: Should I increase my current credit card limit, or apply for a new card?
While I typically keep my balance-to-available-credit ratio under 50% on each card (I aim for 30%), one of my cards was hovering dangerously close to that line.
Of course, the situation may exist that a person cannot get a new credit card for whatever reason. Or maybe the existing creditor does not want to increase the credit line. That leaves the person with the answer: “Whatever I can get.”
But assuming both options are open to a customer, let’s look at the pros and cons to both situations. Both choices have both negative and positive affects on our wallets, our credit score, and our frame of mind.
The Dollars and Sense Behind Applying for a New Card
If you have good-to-excellent credit, there’s a very good chance you’ll qualify for a 0% intro APR credit card with no annual fee.
If your current card doesn’t already enjoy a low APR, applying for a new card is the best financial choice. If you are currently enjoying an intro APR of zero but it’s set to end soon, also consider applying for a new card.
Of course, if you can’t get a new card with a very low (or zero %) intro APR, you may as well put the balance on your existing card. That means only one bill to pay, and your credit score won’t take as much of a hit. This is because you won’t have a “new account” in your credit file.
Which brings us to the second point…
The Affects on Your Credit Score When You Open a New Account
If you’re concerned about the affects of opening a new credit card on your FICO score (and you should be, because your FICO score impacts many areas of your life), you should be aware that opening a new account will make your credit score dip slightly. Luckily, the drop will be temporary. (Usually six months).
Continue making your payments on time, and your score will go back up.
Also, if you are opening a new card because you need more credit for an emergency purchase, presumably your other credit cards are charged up pretty high — or at least over that desirable 50% debt-to-available-credit ratio. When you open a new card, you won’t change the ratio on your old card, so this can adversely impact your credit score, too.
On the other hand, if you call and ask for a credit limit increase, you may be able to do good things for your credit score.
1. You won’t show a new account on your file.
2. You may be able to increase your credit line past the amount of your emergency expenses, which would improve your debt-to-available-credit ratio and raise your credit score.
If you can do it, the best choice for your credit score is to increase the limit on your existing credit card. We offer tips on how to increase the limit on your credit card in this article.
Which is Better, Overall?
As you can see, a number of factors determine which choice is best for you. It may be more difficult in today’s economy to get your creditor to increase the limit on your current credit card, while you’re receiving offers for new credit cards faster than you can shred them. If that’s the case, your choice is easy.
In general, there are many benefits to increasing the limit on your current credit card:
- Only one bill to pay each month
- Less negative impact on your credit score
- Might positively impact your credit score by improving your debt-to-available-credit ratio
However, if you have a 0% intro APR credit card offer with no annual fee, it may be smarter to open the new card. If you do that, you might consider transferring your existing balance to the new card, as well.
Only you know which decision — applying for a new credit card or increasing your current credit card limit — is best for your financial situation. What did I choose? I didn’t have to; one of my credit card companies increased my limit today after a routine review of my account.