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When Should You Raise Your Credit Card Limits?
By Stephen Snyder
You know that one of the fastest ways to increase your scores is to simply increase the limits on your cards. But how and when do you ask for limit increases? There's a right way to do it and a wrong way
Increasing Your Limits Can Decrease Your Scores
What you may not know is...when you ask for your limits to be increased, your scores can actually go down.
What?
It's true. The type of inquiry the lender makes when you ask for a higher limit is the type that lowers your scores.
I found this out the hard way a few years ago when I asked for a limit increase on one of my cards. I received the limit increase...but I also received an unexpected surprise...a inquiry that lowered my scores.
I don't like unexpected surprises...especially ones that lower my scores.
How do I know the inquiry lowered my scores? Simple—I reviewed my FICO scores just before I applied for the increase. (It's a habit I have...you should get into that habit, too.) Then I reviewed my scores afterward—and they were lower.
But there's an even simpler way for you to find out what effect your actions have on your reports. Just subscribe to a good report monitoring service and you'll find out the minute something changes on all three of your reports.
Do You Have Too Many Inquiries on Your Reports?
It's kind of unfortunate, but the number of inquiries that you initiate is an indicator of how risky you are to a lender.
So what's the work around? How can you shop for without being penalized? Here are some options...
1. Don't ask for limit increases. Be satisfied with the periodic limit increases that your lenders give you. This is my least favorite approach. It's too passive. When it comes to improving your credit, you need to be proactive. Besides, some lenders may never give you an increase unless you ask for it.
2. Ask for the increases and live with the inquiries. This is a step in the right direction, but you can do better.
3. Minimize the effects of the inquiries by applying for limit increases only on card accounts where you stand to gain the most FICO score points. So, how do you do this? Simple. Use the new free Increase Your Limits Spreadsheet. Enter your limits and balances on each of your cards and it will let you know whether it's beneficial to ask for a limit increase at this time. Go here to download it right now.
Obviously, when I talk about increasing your limits I'm referring to cards or any account that your monthly payment varies based on how much your balance is.
In addition, the accounts must be unsecured...as opposed to secured card accounts where you deposit money in advance and the balances become your limits. Usually, the best way to increase your secured limits is to simply increase the amount you have on deposit—assuming you haven't already reached the maximum deposit allowed for the card (more on this in a future issue).
Account Review Inquiries Don't Lower Your Scores
Here's how it works...
Lenders periodically "review" the accounts on your reports to determine if they should:
1. Renew your accounts
2. Close your accounts
3. Increase (or decrease) your limits
4. Increase (or decrease) your interest rates
This is a part of their normal course of managing your account. Most big lenders will do this either monthly or quarterly. It's called an account review.
The good news is—an account review inquiry will not lower your scores, because you didn't apply for credit. Since you didn't initiate the inquiry, it won't affect your scores.
Now, let's explore a myth...
Do Unused



Credit Limits Hurt Your FICO Scores?
No.
Many times, I hear people giving advice that you should use as much of your card limit as possible. That's not a good strategy.
The truth is—the higher your limits and the lower your balances are, the higher your FICO scores will be. Your strategy should be to have the highest limit and the lowest balance possible.
Rest assured, if you have a $1,000 limit on one of your cards and you increase your limit to $2,500—the unused $1,500 in no way hurts your FICO scores.

Article Source: http://www.articles-galore.com

Stephen Snyder is the founder of the After Bankruptcy Foundation a non-profit organization that helps people recover after bankruptcy. He has helped thousands of people obtain a credit card after bankruptcy with a fair interest rate.

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