Should I request an increase in my credit limit to increase my credit score?

"I only have one 2,000$ credit limit credit card. I always pay my bill on time in full every month . Should I get another credit card or request an increase in my current limit for a better credit score?"

Paying your credit card balance in full is always a good idea, for two reasons.

First, the obvious: revolving credit is extremely expensive—upwards of 30% in some cases. Even a 9% card is high, compared to other forms of financing such as mortgages and car loans.

The second reason has to do with credit scoring. The FICO model uses "credit utilization" among other factors. This means that the model evaluates your revolving account (credit card) balance as a percentage of your credit limit. Once you exceed about 30% utilization, your score begins to suffer. We have seen some cases that dramatically illustrate the effect of higher credit utilization. There was a client who recently had a card with a $1,000 limit and a $900 balance. He always paid at least the minimum on time. He reduced the balance to $250 and got an immediate 20 point bump in his FICO score. (Note: paying down credit card balances don't have an immediate effect without taking additional steps. You'll see the improvement in your score only when the credit card company reports the new balance to the credit bureaus on their regular reporting schedule. To get an immediate score improvement, you'll have to do a "rapid rescore." This means that the credit report vendor will submit documentation directly to the credit bureaus to bypass the normal reporting cycle. There is a nominal cost to this—typically around $50 per account per bureau, plus the cost of an additional credit report.)

To your question: having a higher credit limit has no downside, and may well improve your credit score—as long as you keep your credit utilization low. Higher credit limits may well lead to very attractive offers from other credit card vendors. You'd be surprised at the discounts you can get out there! One of the reasons credit card companies keep raising credit limits is to tempt their customers to spend more money and carry a balance. They are relying on human nature to make billions of dollars in interest. Some companies, like Capital One, issue multiple cards with different due dates. I am sure they reap millions in late charges from people who simply lose track and miss a payment. These legal tactics are certainly debatable, but they're certainly effective. We consumers ultimately have the upper hand, though: we can pay balances in full each month, thereby depriving them of an interest income. We can arrange automatic payments of the minimum on every account—even though we pay the balance in full each month. Our "revenge" is to select those cards with the tastiest reward programs, use them regularly and avoid paying a single penny of interest!

Whatever you do, you should increase your limits as much as six months before you are ready to buy. Use the cards sparingly or move balances around before paying off. The key is to keep the total utilization factor down.

 

Welcome to Our Office
Slider
North County
Latest Listings
Slider
Jumbo Loans to $2 Million
Listings to Match
Slider