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Should I Accept a Credit Line Increase?

I was talking with friends over the weekend when one of them asked me a question I’d, surprisingly, never saw before (I would also later see it on Reddit [3]). My friend received a letter in the mail from his credit card company that “congratulated” him on his good credit behavior. It also increased his credit limit by about 25%. Nominally, it wasn’t a huge increase but it was a large enough number that my friend thought about it.

A little bit of background (self-reported, I only asked because I told him I was going to write a post about it) – he has no credit card debt, has pretty good credit, has a car loan and a mortgage. The letter he received wasn’t written in a way that asked him if he wanted the increase, it simply told him that it was increased. (in theory, he could call them and ask to have it reduced but the default was acceptance).

So should he accept it?

Why He Should Accept an Increase

Credit utilization is one of the factors in a credit score and it’s calculated based on your credit usage. Total credit used divided by total credit available. The smaller this number is, the better your score is. Even though my friend carries no debt, he uses his credit cards and so a statement balance is reported each month. By increasing his total limit, he’s reducing his utilization.

They never give you credit when you need it! There might come a time when you’re in a jam and you need to rely on that (expensive) credit. Maybe you’re traveling, without much cash, and you need a few thousand bucks for some emergency. The credit is basically free, it’s there if you need it, so why not have it in your back pocket? Emergencies happen and having a card that unlocks thousands of dollars of spending power, without you having to carry thousands of dollars, might come in handy someday.

More credit, more rewards. The above reason cited emergencies but sometimes it’s nice to make large purchases on a credit card and get those rewards. Buying some furniture soon? Put it on your card, collect some rewards, and then pay off the statement when it’s due. You won’t get rich this way but every little bit counts.

Why He Shouldn’t Accept an Increase

These reasons won’t apply to my friend specifically but they’re valid reasons.

More credit may result in more debt. If you’re someone who carries debt on your credit cards, you may want to decline the increase because you might accumulate more debt. You know that friend (or it could be you!) that complains about how money seems to fly out of his wallet? If he carries cash, he’ll spend it? Maybe you’re like that with credit. If that’s the case, decline. None of the reasons above are valid if you’re paying double digit interest on credit card debt.

If it’s an offer and not an automatic increase, check if they’ll do a hard inquiry. My friend got a letter informing him that an increase had occurred, but sometimes you may get a letter that says you “may be eligible for an increase.” If that’s the case, double check that the credit card company will not do a hard inquiry before giving you more credit. Hard inquiries will hurt your credit score. Oftentimes, if you request on via an online form, a quick response [4] will mean no hard inquiry. If they ask for more information, it’s usually so they can pull your credit. Pass on those.

Were you recently offered an increase? Did you take it?