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Last week I was planning a major purchase (new living room furniture) that I wanted to put on my rewards credit card in order to earn cash back. The problem? Putting the purchase on my card would place me above that 50% debt-to-available-credit ratio that negatively impacts your FICO score. I was about to call the credit card company and ask them to increase my credit limit when I received a notice in the mail that my credit card company had increased my limit — without my asking! Am I just that lucky? Not at all.
I began thinking about the steps anyone can take to get your credit card company to increase your limit without asking.
This information is especially useful since it’s harder to get companies to increase your limit at your request. Instead, they offer periodic, routine reviews of your account and then decide whether or not to increase your limit. (Be careful — they can also decrease your limit during these reviews if you haven’t used your card in a few months!) These routine reviews are a “soft inquiry,” which won’t affect your credit score. But if they result in a credit limit increase, they will positively affect your FICO score. Best of all, you won’t show a new account on your credit report.
Yes, the number one thing that will keep your FICO score high will also result in your earning more credit from your existing creditors. Credit card companies want to keep good customers. Pay your bills on time and you’ll be rewarded.
The credit crunch has brought a frustrating trend of credit card companies cutting your limit if you don’t use your credit card. But the opposite is also true — if you use your card, your creditor may reward you with a credit limit increase.
I can’t find any proof that credit card companies look at this, but every time I have paid off a large balance on my credit card, I’ve gotten a credit limit increase within a few months. Besides, paying off large balances is good financial sense, so I feel comfortable sharing this tidbit with you. Other sources say that paying off your balance each month makes
you a good credit risk and, therefore, likely to receive a credit limit increase without asking.
Credit card companies won’t increase your credit limit just because you’ve gone over your existing limit! After all, they make money on over-the-limit fees until you pay down your balance. Stay within your credit limit (ideally, you should have 50 to 70% available credit on your card) and you’ll be rewarded during a routine review of your account.
Once you’ve successfully received a credit limit increase after a routine review of your account, what should you do with that new available credit you have? Don’t use it! Let it sit on your card, giving you peace of mind that you have it in the event of an emergency, and let it raise your credit score by increasing your debt-to-available credit ratio. Of course, if you have other, higher-interest credit cards and it makes sense to use the new available credit to consolidate your balance onto one, low-interest card, that’s good money management, too.
The wrong thing to do? Go on a shopping spree using your credit card when you don’t have the money in the bank to cover it. But you knew that already, right?