Should You Accept That Pre-Approved Credit Limit Increase?

• A credit limit increase can help improve your credit score.
• Spending more than 30% of your available credit can affect your score, even if you pay off your balance every month.
• Get a credit limit increase before you need one. If you become unemployed or require credit urgently, you may find it challenging to get approved.

If you faithfully pay your loans, mortgage and credit cards each month, then you’ve probably received a call or letter from your bank with the news that you were pre-approved for a credit increase or a line of credit.

You might be thinking, “I don’t even use all the credit I currently have. I don’t need an increase.”

But guess what? Accepting a pre-approved credit increase may help your credit score.

Why were you offered a pre-approved increase?

If you already have an account with a bank, they may pre-approve a credit increase or a new line of credit because they recognize you for being a good customer. By diligently paying off your card every month and staying on top of your current loans, your bank now trusts that you will pay them back if they increase your available credit.

Pro tip: If your issuer notifies you that you are pre-approved, ask them for points in return for raising your credit limit. They may not always say yes, but some issuers do this. It’s worth a try.

How does an increased credit limit improve your credit score?

No hard check

Usually, your bank sends a request to the credit bureau for your current credit score when you apply for a loan or credit increase. This process is known as a hard credit check.

Your score is slightly affected each time a credit inquiry is recorded. In the credit bureau’s eyes, applying for new credit indicates someone who is having financial difficulties.

However, the bank often doesn’t perform a hard credit check on your file before pre-approving a credit limit increase. Rather than performing a check, the bank may base their decision to give you additional credit on what they already know about you as a customer: repayment history, account balance, how much you’ve invested, etc.

As a precaution, you should still ask the bank if they intend to perform a hard credit check before accepting the increase. Some banks may claim that you’re pre-approved but do a credit check after the fact.

Even if the bank does plan on performing a check, this doesn’t mean you shouldn’t accept the increase. While one hard credit check won’t cause your score to fall too much, multiple inquiries at the same time could tank your score.

A decreased credit utilization ratio

Your credit utilization ratio plays a vital role in your credit score. Experts recommend a utilization ratio of at least 10% of your total available credit, but not more than 30%.

For example, if you have a $10,000 credit limit (across all your credit sources), you shouldn’t have a balance of more than $3,000 at any given time. Spending more than 30% can affect your score — even if you pay off your balance every month.

Additionally, it can be beneficial to spread the balance over multiple cards or lines of credit if that is an option. If you have two credit cards and each has a limit of $5,000, it’s better to have $1,000 in charges on each card than $2,000 in charges on one card.

By increasing your available credit and maintaining similar monthly costs, you are essentially decreasing your credit utilization ratio, which can improve your credit score.

Suppose your credit limit is $5,000, and you spend about $2,000 each month; you are using 40% of your available credit. In this case, you are using more than the recommended utilization ratio for maintaining a good credit score.

But if you accept a pre-approved increase to $10,000, and you continue to spend $2,000 each month, you are only using 20% of your available credit, which is within the recommended range.

A varied credit mix

Did you know that having diverse types of credit on your record can bump up your score? Ten percent of your score is calculated based on the types of credit you use.

Consider accepting a line of credit from your bank if you only have a credit card. Having a line of credit can benefit you, and you don’t even have to use it, meaning it can boost your score effectively for free.

You never know when you’ll need it

We often think that we can call up the bank and request a credit increase when we need it, but that’s not always the case.

For example, say John gets a new job and has to buy a car within the week. To simplify the process (and earn a bunch of reward points), he plans on paying for part of the vehicle and purchasing insurance on his credit card. However, John will spend over 30% of his total credit. He calls the bank to request a credit increase, but the time needed for approval is too long. John ends up paying for his car using a debit card and loses out on any bonuses from his credit card rewards program.

Similarly, if you lose your job, having a line of credit as a back-up source of income would be a relatively inexpensive way to make ends meet. But if you’re already unemployed, you’re going to have a hard time getting approved for any new credit.

When should you say no to a pre-approved credit increase?

Of course, there are reasons to say no to a credit increase. If you have credit card debt or a problem controlling your spending, accessing more credit may be a bad idea.

While an increased limit can potentially improve your credit score, it’s probably better to keep your available credit low to prevent further debt.

This post was updated on March 25, 2021.