Do credit card increase affect credit score?

Impact of Credit Card Limit Increase on Credit Score

Credit card limit increases can have an effect on your credit score. Understanding the different types of inquiries and their impact is crucial.

Hard Inquiries

When you apply for a credit card or request a credit limit increase, a hard inquiry is performed. This inquiry involves the lender obtaining your credit report from a credit bureau. Hard inquiries can temporarily lower your credit score, as they indicate to lenders that you may be seeking additional credit.

Soft Inquiries

Some credit card issuers may proactively offer a credit limit increase without requiring a formal application. This is typically done using a soft inquiry, which does not involve obtaining your credit report. Soft inquiries have no impact on your credit score.

Impact of Limit Increase

Generally, a credit card limit increase can improve your credit score by lowering your credit utilization ratio. This ratio measures the amount of credit you are using compared to your total available credit. Keeping this ratio low is important for a good credit score.

An increase in your credit limit reduces your utilization ratio, even if you don’t actually use the additional credit. This can help boost your score.

However, it’s important to use your credit card responsibly after a limit increase. If you overspend and carry a high balance, your credit score may suffer.

Type of Inquiry Matters

The type of inquiry made for your credit limit increase plays a significant role. If you request an increase yourself, it will result in a hard inquiry and a potential temporary decrease in your score.

On the other hand, if the issuer proactively offers an increase, it will likely be done via a soft inquiry, which has no impact on your score.

Conclusion

Credit card limit increases can affect your credit score, depending on the type of inquiry involved. Hard inquiries can lower your score temporarily, while soft inquiries have no effect. It’s important to manage your credit wisely after a limit increase to improve your overall credit score.