Did you get an offer for a credit increase, and now you’re wondering whether it’s a good idea to take it or not? It may be a good idea, but probably not for the reason you think. It’s not a good idea to accept it if you want to be able to spend more money. It is a good idea, however, for raising your score.
See, your FICO score is made up of certain factors that has a percentage.
•Payment history (35%)
•Amounts owed (30%)
•Length of credit history (15%)
•New credit (10%)
•Types of credit used (10%)
The “amounts owed”, which makes up 30% of your score is the amount of your credit limit you use. The more debt you have, the lower your score.
You should aim for 30% or less of your overall credit limit. For example, if you only have one credit card with a $1000 credit limit and spend $400 a month on your card, that’s a 40% utilization ratio, which it too much.
However, if you’re offered a $1000 increase on your credit limit and you keep your spending the same at $400, but have a limit of $2000, your utilization will decrease to about 27%. This will help increase your score.
As long as you keep your utilization low, accepting a credit limit increases could be a great idea.