Monday, October 28, 2013

Increasing Your Credit Limit to Maximize Your Credit Score

It seems like the sky is the limit these days when it comes to how much you can spend. 

Read this if: 

1) You have a credit card. 
2) You know what a credit score is. If not, read this.
3) You want to maximize said credit score by understanding the debt utilization ratio. 

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It sounds kind of counter-intuitive, doesn't it? 

I've talked about this before but basically, the debt utilization ratio is a number that shows how much of your total credit you are using. For example, if my total credit limit is $1000, and I am currently carrying a balance of $100, then my debt utilization ratio is 10%. You want this number to be as low as possible, and there are two ways to do that: increase the total credit available to you, or spend less. I recommend both, but I'm just gonna talk about increasing your credit limit for now. 


How does it work? 

In general, when you apply for credit, your credit score and report will be checked. This includes when you apply for a credit card for the first time, and when you ask for credit increases. When your credit score is pulled, that action impacts your credit score a bit. In other words, avoid having your credit score pulled a bajillion times. 

Once your information is checked, if you have good enough credit, you will be approved for the credit you requested. 

How do you increase your credit limit? 

There are two ways that I know of. You can either call your credit card company or look online at your account information. I've found that once a certain amount of time passed, I got "preapproved" for a credit limit increase for a certain amount. This is good because that means when I request an increase of anything up to or below that amount, the credit card company WILL NOT pull my credit score or report. 

If you call the credit card company, they can help you figure out what your maximum preapproved amount is. 

When should you request a credit limit increase? 

I tried once three months after I got my first credit card, and got denied for a credit limit increase. I tried again last week, when I'd had my card for about seven months, and it was fine - so I think every six months or so is a good estimate. 

JUST TO BE CLEAR!

I am NOT saying, get a higher credit limit so that you can spend more on your credit card. NO. NO. NO NO. NOOOOOO. 

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Questions about credit? Let me know in the comments. 

As always, contact me with questions or suggestions! You can either comment directly on the post or send me an email to moneymattersjoan@gmail.com. 

Photo Credit: Frans Persoon via photopin cc

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