One of the most popular articles on this site is an article I wrote last year about ‘piggybacking’ off someone’s credit(1,121 views in just the past month alone). In the article, I actually did a case study where I added my fiancee as an authorized user to my AMEX Gold card and compared her scores and report before and after.
Needless to say, strong credit is a very important aspect of people’s lives and at the bare minimum you’ll need credit if you ever want to purchase a house. But some employers and even landlords are starting to check credit scores when screening potential hires or tenants so it’s more important than ever to maintain good credit. You can read all about maintaining good credit and my free identity theft protection plan if you’re interested in learning more about credit but today I’m going to answer a reader question about raising your credit limits. Reader DD writes in:
Quick question. I now have a credit score of 755(up from 680) and I can qualify for a bunch of new credit cards. I have two now, one is an old one with a low low limit and another that is two years old with an OK limit of 2500 dollars. I want my utilization to be less than 30% of my total limit to benefit my score. What can I do? Should I get another card with an awesome limit? Should I dump the old high interest low limit card? Should i increase the limit of my low limit and high limit cards?
Just Getting Started
When you’re first getting started with building credit, your score will be dominated by the low age of your accounts, the total limit of your accounts and your utilization. There’s not a whole lot you can do about the low age of your accounts other than wait it out. You always want to keep your oldest line of credit open even if you rarely use the card.
Utilization is the percentage of available credit that you’re using. So in DD’s case, he has 1 card with a $500 limit and another with a $2,500 limit so his total monthly limit would be $3,000. If he spends just $1,000 a month and pays it off every month, he’ll still have a reported balance of $1,000 giving him a 33% utilization. You want your utilization to be as low as possible.
Tip: If you ever plan on applying for a big loan and are worried about the Debt to Income Ratio, you should consider not using credit cards for one month before applying. That way, when you apply for the loan they’ll see a $0 monthly balance instead of $xx amount. It doesn’t even matter if you pay off your balance in full every month since credit card companies will report your current balance to the credit bureaus.
What’s the Solution?
Here’s my response to DD:
A 755 score is great, that’s about what I’m at too. Closing cards that you don’t use can actually hurt your credit score since it will reduce your total available credit(won’t be a huge issue in your case if you have low limits) but if the card that you’re going to close is very old, it will reduce your average age of credit lines. It probably won’t matter much if the card is only 1-2 years old, but if it’s any older than that, I would keep it around(as long as there’s no annual fee).
Are you paying off your credit card in full every month? If no, that would be the first thing I would focus on. The interest rates credit card companies charge are seriously ridiculous. Once you’ve got a handle on that, you can usually call your credit card company and ask for an increased limit. You can tell them you have some large purchases coming up, you plan on traveling, etc. That will help the utilization part of your score which is calculated by taking your outstanding debt divided by your total credit limit.
In your situation, I would probably keep both cards but call both of them up and ask for a limit increase. Even if they agree, I still might open one more and try to get a nice high limit solid card that you can use for all your purchases from now on. Just make sure to pay the balance off in full every month. If you’re the type to put a lot of things on credit when you don’t have that much money in savings, a high limit card is a bad idea.
With a mid 700 score you should easily be able to get any of the entry level cards with Chase, Citi, etc. These cards should all have no annual fees and a lot of them have nice cash back rewards like 3% on gas, 2% on groceries and 1% on everything else.
So in summary, I would keep both cards but ask for a higher limit on each one and probably open a new entry level card like the Citi Preferred Card where it’s easy to get approved and you can get a super high limit of 10k+. That would bring his total number of cards to 3 which isn’t overly complicated in my books. At that point, he could even close his $2,500 limit card(since it’s newer) if he wants to simplify things even further. I’d probably keep the low limit oldest card though because age is one thing you can never get back.
Readers, how’s your credit profile? Do you care about your credit score or do you only worry about it when you need financing?
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Yup. Never unless there’s an annual fee. And even then, ask if you can get the annual fee waived for a year before closing it.
Also, if they won’t raise your limit, here are some other reasons you can give: I’m making more money at work, I’d like to continue using your card as my primary spending card, I’m getting a lot of attractive offers in the mail from other credit card companies. And if they won’t increase your limit, you might as well ask them to lower your interest rate.
Great point, I even got AMEX to nearly waive the AF on my Gold Card the other day. Those are all good reasons, I’ve also found that sometimes you need to escalate the call to a manager to really get what you want.
I’m working on improving my credit report with the intended purpose of qualifying for better rewards cards 😉
I actually bumped up some of my limits back in January. Chase tried to tell me I didn’t qualify for much and I asked for some more clarification. I explained that I try to keep my utilization low (~30%) and the limit they were offering me was very low in respect to my monthly income.
I’ve just been leaving things open for now. I may change that philosophy later.
I’m planning on applying for the Fidelity 2% Amex card in July, once I’ve let my credit season for 6 months, to use as my primary card. (My current primary card is only 1% cashback.) I’m also debating adding either the Amex Blue Cash Preferred or Everyday too, but not sure if it’ll pay off enough. Going to 2% from 1% is a good jump. It’s looking like my grocery spending won’t be high enough for the Preferred to make sense 😛
Yea I’ve found it’s really difficult to get your limits raised by calling in. It’s so much easier to just open a new card, I opened 3 yesterday for some sign up bonuses and got a combined credit limit of 33k.
I think you’ll like the series I’m working on about credit card bonuses, it blows rewards cards out of the water. Why worry about 1,2,3% back when you can get $1000 in airfare from signing up for one card?? 🙂
Yea, unless it has an annual fee, you really shouldn’t close your really old credit lines. Use them just enough to keep them open, and toss them in the home safe for the rest of the time.
Agreed. I have about 5 cards with AF’s and every year when I call in to cancel they offer to waive the AF or give me enough points to balance it out so I keep them around. I’ll have a big series coming up on my latest credit card app-o-rama where I plan on racking up 200k points in airline miles 🙂
Good answer Harry, if increasing your credit limit is a big issue then see if you can raise the rates on your existing cards first. On thing I don’t about having to many credit cards though is it always feels like for every card you have is another bill you have to pay, this why I only have 2 cards.
Yea that’s a good point, more cards is definitely more work. I’m not really the model of simplicity but if you want to keep it simple, you can keep one or two cards with high limits. I have all my cards set on autopay but check my transactions daily with Mint, that way everything is fresh in my head as opposed to if I were to check at the end of the month..
Harry,
I check my credit frequently, but I have a close grasp of my finances and can predict my score. I’ll actually be calling AmEx soon to try to get a higher limit on my rewards card. Thanks for the tips on what to tell them.
-Christian L. @ Smart Military Money
Nice work Christian, good luck and let us know how it works out!
If you have solid credit, it shouldn’t be an issue. I have done it in the past with my AMEX blue cash card. 🙂
Great response, and I agree with keeping the oldest one around. I was about to close mine because of the annual fee, but then the bank said if I keep it open, then they’ll waive it going forward. So maybe sometimes it doesn’t hurt to ask if it can be waived?
Nice, that always happens to me haha. I have a bunch of cards still because they keep waiving the annual fee.