07/08/2022
***CREDIT TIP****
Hey there Fearless 1st Time Homebuyer!!
Does requesting a credit limit increase affect your credit score? (Spoiler alert- it may help!)
Getting your credit limit increased can be as easy as calling customer service or making a request through your issuer’s mobile app. While a credit limit increase might make it easier for you to pay for your next big purchase or improve your credit score, consumers should know that it can impact your credit score.
Is it a hard inquiry or a soft inquiry?
Depending on the card issuer, making a request for a higher credit limit can incur either a hard inquiry, a soft inquiry or both types of credit checks into your credit report, explains Rossman.
A hard inquiry occurs when a lender pulls your credit report — this action typically causes your credit score to decrease between five and 10 points. Note that while a hard inquiry will only affect your credit score for up to one year, it will stay on your credit report for two years.
In contrast, a soft credit check does not have any effect on your credit score. For example, Capital One would not perform a hard inquiry if a cardholder were to request an increased credit limit for one of their Capital One credit cards.
Keep in mind that most card issuers do not publicly reveal which type of credit check they’ll perform on consumers requesting a higher credit limit, so you’ll want to call ahead and ask to be sure.
You can quickly request a credit limit increase for Citi credit cards, like the Citi® Double Cash Card, through the bank’s app with just a few taps. And reports indicate that Citibank will almost always only use a soft pull when making this request, however if you want a higher credit limit than what Citi initially offers you, they’ll then perform a hard pull. Citi also offers automatic credit limit increases which do not result in a hard pull.
INCREASING YOUR CREDIT LIMIT COULD IMPROVE YOUR CREDIT SCORE IN THE LONG RUN
Schulz notes that you should not be too concerned if your card issuer performs a hard inquiry into your credit report as the slight ding to your credit score is only temporary. The benefits of asking and receiving a higher credit limit often outweigh the negative effects of the inquiry into your credit report.
When you increase your credit limit, you may also be improving your credit utilization ratio, which can help your credit score in the long run. There are five factors that make up your FICO credit score: your payment history (35%), the amount owed (30%), the length of your credit history (15%), your credit mix (10%) and new credit (10%).
The amount owed category (30%) considers five factors as well, including how much money you owe across all your accounts, the amount you owe based on the different types of accounts you have, the value of your current balances, how much you owe on your installment loans and your credit utilization ratio.
Therefore, experts say the credit utilization ratio comprises 30% of your FICO score since it only applies to revolving lines of credit and is defined as the ratio of credit you’re using to the total amount of credit you’ve been extended.
For example, if you owe $2,000 on a credit card with a $10,000 limit, that means you have a utilization ratio of 20% on that card. The total credit utilization ratio would be based on the total amount of revolving credit you have been extended and the total amount you have used.
While experts generally recommend that people keep their credit utilization ratio under 30%, anything below 10% is even better.
Credit utilization is the second most important factor in the FICO scoring formula after your payment history, so improving your credit utilization ratio can end up having a positive impact on your credit history.
This information was originally on cnbc marketplace
Call me today at 561-310-0303 to find out more important credit tips to maximize your credit score on purchasing your next home!
Rita Driscoll
