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Pre-approved Credit Limit Increase – Does It Help or Hurt Your Credit Score?

Access to more credit can feel like a lifesaver when times are tough or extra money is necessary for unplanned expenses. Getting a notice that a pre-approved credit limit increase on your credit card is available may seem like a good solution to financial pressure. But why were you offered a credit limit increase, and should you accept it? 

Credit Card Limit Increases 

Banks and credit card companies typically send out two types of offers. The first is a pre-approved credit card that is offered to people who don’t have the particular credit card the company is promoting. In most cases, you simply have to accept the offer, and they’ll send you the card with the approved credit limit.

A credit limit increase is for a credit card you already have. The company that issued your card will offer a pre-approved credit limit increase that can be hundreds or thousands more than your existing limit. Generally, you need to accept the offer online, by phone, or by signing for it. 

Why was I offered a pre-approved credit limit increase?

There are several reasons why you may have received an offer. The company that issued your card is in business to make money. They know that if they extend an offer of a limit increase to you, there’s a good chance you’ll accept it. Once the additional credit is available, you may use it but be unable to pay off the balance. Since credit cards charge high interest rates, the more you owe, the more money these companies make.

Not all borrowers get limit increase offers. If you’ve received one, it usually means:

  • Your card is in good standing, and the payments are up to date.
  • You’ve made all your payments on time for a specific period, such as 12 months.
  • Your card has been open for at least three months or more.
  • You are not at or over your credit limit.

So, a pre-approved credit limit increase typically recognizes that you manage your credit wisely and have a good credit score.  

Credit limits and your credit score

How you handle your personal debt payments and the type of debt you have significantly impacts your credit rating. Four factors that contribute to your credit score are:

  1. When you make your payments.
  2. The amount of credit you have.
  3. Your credit utilization which means how much of your available balance you have used.
  4. The types of borrowing accounts you have.

A critical factor affecting your credit rating is how you make your payments. Late or missed payments will hurt your credit score. Having accounts that are in arrears will significantly reduce your credit rating.

If you have very little credit, you may have a credit score that’s a bit low. Sometimes, there isn’t enough information to generate a high credit rating if you only have one borrowing account. However, your credit score should increase if you manage your account by making payments on time and not exceeding its limit.

You may have borrowing accounts that allow you to access the limit repeatedly after you pay it down. These are often called revolving credit products and are typically credit cards, lines of credit and overdraft protection. Owing more than 30% of the limit on any of these products can drag down your credit score. If you have a line of credit with a $15,000 limit and owe $14,000, your credit rating could be lower than if you owe $5,000 on a line of credit with a $15,000 limit.

A mix of borrowing accounts can result in a higher credit rating because it shows you can adequately manage a mixture of credit accounts. Consistently making loan, mortgage, credit card or line of credit payments on time can help increase your score.

How to improve your credit score

Your credit score plays a crucial role in many aspects of your life. It can impact your ability to:

  • Be hired for a job.
  • Get approval for a rental unit.
  • Be approved for credit such as a loan, mortgage, line of credit or credit card.
  • Have access to lower borrowing interest rates.
  • Secure a mobile phone plan.

If you need to improve your credit rating, here are some ways to do it:

  1. Make sure you pay all your credit payments on time.
  2. Pay more than the minimum payment if you can.
  3. Catch up on any overdue payments.
  4. Reduce the amount you owe (credit utilization) by paying down your loans and credit cards.
  5. Delay big purchases until you can easily manage what you currently owe.
  6. Monitor your credit report for mistakes and errors.

Should I take a pre-approved credit limit increase?

The short answer is – it depends. It can be helpful, or it can damage your finances and your credit score. How you plan to use the extra credit will determine if it will benefit you.

Consider accepting a pre-approved credit limit increase if:

  • You pay off your card every month and have no problem making payments.
  • You need to make a big purchase, and the extra credit will be handy.
  • You may need a higher limit at a later date.
  • You have a plan to pay off any balance owed.
  • The interest rate on the card is low.
  • Your card has perks like cash back, points or extended warranties you can take advantage of.

Avoid the extra credit if:

  • It will tempt you to spend more than you can afford. 
  • You already owe more than you’re comfortable with.
  • It will cause you to get into debt or get more deeply into debt.
  • The interest rate on the card is high.
  • You don’t need it.

Your credit card company can only increase your credit limit if you consent. If you don’t authorize the increase, it will simply expire. However, you’ll probably get another credit limit increase offer in the future, which you can accept or ignore.

Getting Help With Your Debt

Your debts can quickly spiral out of control, especially in our current economic environment of high interest rates, the increasing cost of living and job losses. It might be tempting to accept a limit increase on your credit card if you’re having a hard time making ends meet. Before you do, ask yourself if taking the extra credit will help or hurt your situation. 

Extra credit might not be the answer if you are struggling with your living expenses, credit and bill payments. Fortunately, options are available to help you get out of debt. Our team of Licensed Insolvency Trustees at Allan Marshall and Associates are debt experts. We offer credit counselling and government-approved debt programs to help you deal with the amount you owe. Please contact us today by completing our online form or calling 1-888-371-8900 for a free, no-obligation consultation. We’ll work with you to find the best solution to get rid of your debt once and for all.

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Francyne Myers, JD, CIRP, LIT

Francyne spent many years in senior positions with the Office of the Superintendent of Bankruptcy. During the course of those years, she also found time to study Accounting at Saint Mary's University and attend the Schulich School of Law (formerly Dalhousie Law School) to earn her degree in law (J.D). In 2012, Francyne left public service life and joined Allan Marshall & Associates Inc. where she completed her education becoming a Licensed Insolvency Trustee in 2013. She is actively involved in her local Trustee Association and enjoys helping others find solutions to their financial problems.