To start off, when we're talking about credit limit increases, we're not referring to increases when the credit issuer automatically grants them. This post focuses on asking the credit issuer for a credit increase. Whenever you ask for a credit limit increase, you are taking a hard inquiry.
For some reason, a lot of people seem to get obsessed with getting increased credit limits. Some people like bragging about how they have a $100,000 credit limit with a $50,000 salary. There's not a good reason to have a limit that high.
The reason why I don't ask for credit limit increases is that I would rather take a hard inquiry to apply for a new credit card and have a signup bonus, as opposed to just raising my credit limit.
For example, if you have a Citi ThankYou Premier card that has a $2,000 credit limit, but you want to increase the credit limit to $7,000. If I apply for a new credit card, like the Citi Double Cash card, then I might get approved for a $5,000 limit.
The great thing about applying for credit cards within the same bank is you can easily transfer credit limits by sending a secured message. Ask to transfer some of the credit from the new card (Citi ThankYou Premier) to the old card (Citi Double Cash).
If you think through the factors that impact your credit score, the following are usually reasons why people want to increase their credit limit:
- Lower utilization
- Higher ability to make large purchases
When you apply for a new credit card, you get the same benefits because you're getting more credit limit to lower utilization. You also get the benefit of increasing factors that affect your credit score like the average age of accounts and the total number of accounts.
The "cost" is still the same because you're taking a hard inquiry for a new card or an increased credit limit. At a certain point, it makes sense to stop searching for credit because it's seen as a higher risk to the bank.
Ironically, I intentionally decrease my credit limits when I apply for new cards. At a certain point, you'll have a high credit limit where it doesn't make sense to keep asking for more because it'll be seen risky to the banks.
Most banks have a certain credit limit they're willing to give you based on your income. For example, if you make $50,000/year, some banks will issue you cumulative credit lines up to $50,000. Some banks will ask you to reallocate credit limits if you're reaching the maximum limit.
For me, this is why I intentionally decrease my credit limits. It doesn't make sense for me to keep increasing my credit limits when I don't foresee myself using it. If anything, having a high credit limit is detrimental for me because it makes obtaining new cards harder. I don't want to call the reconsideration line to move my credit limit around.
Whenever I get approved for a card, they usually issue a ~$20k limit. I immediately messaged the bank to lower the limit to $5,000-$10,000. There's nothing I buy that requires that high of a credit limit. Again, I don't keep a balance on my credit cards.
What do I mean that it decreases my risk to the bank? Let's say you make $100,000 and you have a $50,000 credit limit. Their biggest concern to the bank is someone defaulting on payments by running away or not being able to pay. They would rather have someone with a lot of cards and moderate credit limits, as opposed to someone with fewer cards and a large credit limit.
Just because you have a high credit limit doesn't mean they're not monitoring your activity. I covered this subject when my account was under financial review with American Express.
The bank's ideal customer is someone who uses credit cards and doesn't pay the balance in full, meaning they are paying interest. The second ideal client is people who have a high number of transactions so they can profit from transaction fees. Making money off transaction fees is also lower risk for the banks.
The only situation where it makes sense to get a credit limit increase is if it's your first card and you don't want to apply for another one.