Request a credit limit increase? Here’s what to expect
For conscientious consumers, ask for a higher limit on a credit card can seem like a daunting task – one that requires picking up the phone, pleading a case, and risking rejection. But in reality, this process is usually quick and hassle-free. And these days, you can often complete the whole thing in seconds online or through your transmitter’s mobile app without ever making a call. Here’s what to expect.
Whether you call your issuer to request a raise or apply for one online, you will be asked to provide personal information, particularly regarding your income and debts. Indeed, the Credit Cards Act 2009 requires issuers to consider a customer’s ability to pay “based on the consumer’s income or assets and the consumer’s current obligations” before opening a new card. credit card account or increase the limit of an existing account.
“Many customers do not realize [income is] a consideration of what your line is and what your line of credit increases are,” says John Grund, managing director of Accenture Strategy, a company that provides advisory services to banks and payment providers, among others. businesses. “It adds a wrinkle that didn’t exist ten years ago.” It also explains why issuers may periodically ask cardholders for income updates; this information is used to proactively raise limits, he notes.
If you’re asking for a raise, be prepared to answer a few questions about your income, debts, rent or mortgage payments, and employment status.
A quick response, most of the time
These days, credit card limits are usually determined by sophisticated algorithms at lightning speed – not by people who think slowly about cardholders’ finances.
“In most cases, I would describe it as highly automated,” Grund says of the process of increasing credit limits. The request may take longer in some cases, for example, if you have recently changed your address and the information does not match. the credit bureau or bank statements, or if you asked for a much higher limit than you have, he notes. But often you’ll get a “yes” or a “no” almost instantly, whether you apply by phone, online or in an issuer’s app.
Part of the reason is the sophisticated business intelligence software banks use today, says Naeem Siddiqi, author of books on credit scoring and senior advisor for risk and quantitative solutions at SAS, a company that sells such banking software.
If you called your issuer to request a credit limit increase, a customer service agent could submit your request to such a decision-making system. This system “applies a set of rules and policy templates and returns a decision to the customer service agent in less than milliseconds,” says Siddiqi.
A hard pull, in some cases
When you request a higher limit, some issuers will do what is called a “Hard shot.” Difficult inquiries, or difficult inquiries, are triggered when you apply for credit and an issuer checks your credit reports to make the decision. This may temporarily lower your scores. In other cases, issuers will “soft pull” when you request a higher limit, which does not affect your credit ratings. Before submitting such a request, your issuer can tell you in advance whether this will count as a hard or soft draw. If it’s not clear, you can ask.
In some cases, your issuer may not need to get new information from credit bureaus to make their decision, and it will count as a soft request. Typically, banks in the United States put their customers through a credit limit increase algorithm every nine to 12 months to proactively give limit increases, Siddiqi says. Your transmitter may have all the necessary data from these previous soft pulls.
“If I passed you this algorithm very, very recently, and the decision is recent…then I don’t need to shoot you,” Siddiqi says. “But if this decision is nine months old, and the last desk I have on you is nine months old, I’ll pull you a new desk.” These decisions may vary depending on the internal policies of the issuers, he notes.
Asking for a higher credit limit can temporarily dampen your credit scores, but receiving one can boost them. With more available credit, it’s much easier to lower your credit utilization ratio, or the percentage of available credit you’re using, which is a factor in your credit scores. As a general rule, it’s a good idea to use less than 30% of your limit — the lower the better. Keeping this number low may be easier with a higher limit.
This article was written by NerdWallet and was originally published by Forbes.