Are you wondering how to increase your credit score? Should you apply for a new credit card or increase the limit on your present cards? Before we get into the details, let’s understand why a good credit score matters.
Essentially, an individual’s credit rating affects their ability to borrow money via credit cards, mortgages and loans. A credit score takes into account present and past borrowing and spending trends. Thus, there are no quick fix solutions involved when it comes to improving a low score.
One way to improve your credit score is by increasing your credit line. Coupled with improving your credit score, increasing this limit has a plethora of benefits.
First off, raising your credit card limit reduces your credit utilization ratio i.e., the percentage of limit you have used. If the amount of credit you have utilized is close to the amount of credit available to you, your credit score will decline. This is because it increases the risk that you won’t be able to make future payments.
Asking your credit card issuer to enhance your credit card limit will reduce your credit utilization ratio and eventually improve your score. To put it another way, it will cause your outstanding credit card debt to become a smaller percentage of the limit.
Obtain More Loans
Another advantage of increasing your credit limit is that enables you to get additional credit. As you are not using all of available credit, your credit score is intact and you appear financially stable to credit rating agencies. Thus, you are in a position to apply for other types of loans, including car, mortgage and more. Not to mention, you have a greater chance of getting lower interest rates.
Having a higher credit limit can be particularly useful in emergencies. It is easier to use a credit card for emergencies rather than relying on cash.
Increasing Limit Vs Getting A New Card
Although you can get access to more credit by applying for a new credit card, it is better to increase the limit on your existing credit cards.
Opening a new account can hurt your score. The credit issuer runs a hard inquiry in your credit report, which might lower your credit score. It is advisable to apply for a new card only if you need it. Otherwise, ask your issuer to increase your existing limit. Many credit card issuers can boost your credit limit without running a credit inquiry.
In a nutshell, ask for the credit limit increase after you have made regular monthly payments and reduced the outstanding balance.