How More Available Credit Could Boost Your Credit Score
You’ve undoubtedly heard warnings about being careful not to become overwhelmed by credit card debt. That saying “yes” to more credit could tempt you into overspending. These warnings may have caused you to shy away from offers for credit line increases. But is passing up the opportunity for more credit really the best course of action for building or maintaining good credit?
The truth is that more available credit could actually make you more attractive to other potential creditors. Here’s how:
1. It Could Lower Your Credit Utilization Ratio (CUR), Which Could Raise Your Credit Score
Your CUR is a ratio used to express how much you owe in relation to how much available credit you have. It is determined using the following mathematical formula:
The Sum of Your Outstanding Revolving Credit Balances ÷ The Sum of Your Revolving Credit Limits
Why does your CUR matter? Because it is used to calculate your credit score and, after payment history, it’s the second most important criteria in determining your score. It is commonly recommended to keep your CUR below 30%.
Credit cards are considered “revolving” credit, so a credit line increase will make the denominator of this equation a larger number, which could lower your CUR. “Could” is the operative word because it only “will” if you don’t also increase the sum of your outstanding revolving credit balances to the point where it offsets the effect of this larger denominator.
The point being that, if you accept a credit line increase, the best way to put it to work improving your credit score is by keeping the sum of your outstanding revolving credit balances the same or even lowering it.
2. It Shows Future Creditors That Your Existing Creditors Trust You
From a lender’s perspective, extending credit is all about assessing risk. If your current creditors are willing to offer you additional credit, and you continue to make regular on-time payments even with higher limits, that tells other potential lenders that you know how to manage your credit responsibly. That, in conjunction with the higher credit score you hopefully get by lowering your CUR, should make you look less risky and more attractive to future lenders. Which could translate into even more credit, lower interest rates, and better terms and/or perks on your next credit card or loan.
If saying “yes” to additional credit is going to be too much temptation to keep you from spending money you don’t have, then, by all means, say “no.” But if you’re interested in improving your credit and becoming more attractive to other creditors—and you’re confident you can manage your credit effectively—accepting credit line increases could help you achieve this goal.
The information contained in this article is for educational purposes only and is not legal advice. You should consult your own attorney or seek specific advice from a legal professional regarding your particular situation. Please understand that Experian policies change over time. Articles reflect Experian policy at the time of writing. While maintained for your information, archived articles may not reflect current Experian policy.