Congratulations. We just approved you for a credit limit increase of $1,000. Your new limit is $10,000.
If you’ve held and used a credit card for any significant period of time, you’ve probably gotten a notification like that at some point. Especially if you use a card regularly but always pay off the balance.
Generally, most people want as much credit as they can get, even if they’re not going to use it. But these notifications can be automatic.
Is there a time when you should fight against a credit card company increasing your credit limit?
That’s what a listener of the Clark Howard Podcast recently asked.
Can I Decline a Credit Limit Increase?
Is it possible to reject a credit limit increase? That’s what a listener wondered on the Feb. 16 podcast episode.
Asked Stephen in Pennsylvania: “To curb the temptation of running up a bigger debt, are you able to ask a credit card company to NOT increase your spending limit? If so, is it wise to do so?”
It is possible to call your credit card company and ask to reject a credit limit increase. It’s unclear if 100% of the credit card companies will honor such a request.
There are two parts to consider when it comes to credit limit increases, Clark says. Your behavior and your credit utilization. Your behavior is the only potential downside.
“There are people who, given a higher credit limit, treat it as permission to spend more. If that’s you, know thyself,” Clark says.
Explaining Credit Card Utilization and the Impact on Your Credit Score
Back to credit card utilization.
If your cards offer you a combined $10,000 in credit, and you carry a combined balance of $1,000, your utilization rate is 10%.
“People who have turbo-high credit scores above 800 have credit utilization ratios below 10%,” Clark says.
Let’s say you owe $1,000 in credit card debt but your combined limit is $7,500. Then you request and receive a limit increase of $2,500. Suddenly your credit utilization moves from 13.3% to 10% even if you haven’t paid another dollar to your credit card companies.
Your credit utilization makes up nearly one-third of your credit score. Just as low credit utilization can lead to a great score, using a higher percentage of your credit can tank your number.
Using above 30%? You can expect your score to decline. Above 50%? Your score can nosedive.
“Normally what happens is people get the higher limit but their charge volume doesn’t go up, which reduces their utilization of credit,” Clark says.
“If it leads to more spending in your life, that higher credit limit is a curse, not a blessing. But in most situations, if it’s just about having the best credit profile possible, you want those higher credit limits.”
America Faces a Record Amount of Credit Card Debt As Interest Rates Rise
Stephen may be onto something if he thinks a credit limit increase will increase his spending.
That’s a more tempting outcome than you may realize. Americans are struggling with credit card debt at the moment.
The United States is in more credit card debt than ever despite a positive trend during the onset of COVID-19 when Americans saved more and spent less. The end of 2022 saw us collectively in more than $930 million of credit card debt.
That’s an ominous record considering that a person with good credit now faces an average interest rate of 23.77%(!).
Bruce McClary of the National Foundation for Credit Counseling (NFCC) said you can reject a credit limit increase that a company gives you automatically. But “if the increase has already had an impact and been reported on your credit history, lowering it could actually cause your score to go down,” McClary said.
He added that the impact of declining an already-reported credit limit increase should be short-term and minor.
Saddling yourself with credit card debt can wreck your finances and make it difficult for you to get a good rate on a mortgage or auto loan.
However, most people should accept, and maybe actively seek, credit limit increases.
If getting additional credit is going to send you on a spending spree and load you with high-interest credit card debt, you may consider rejecting it.