Home > 2015 > Credit Score

Why Does My Credit Card Limit Affect My Credit Score?

Advertiser Disclosure Comments 11 Comments

Occasionally we get questions from readers who have gotten an automatic credit limit increase, and they wonder if there is a downside to accepting it. Or they close a little-used account and their credit scores go down, even though they are using cards and paying them off exactly as they had been.

What’s going on here? Credit scores are calculated in part based on how much of your available credit is being used. You can calculate your overall utilization by adding up all the reported balances on your revolving accounts (i.e. credit cards, lines of credit) and dividing that figure by the total credit limits. Credit scores also weigh in each individual account’s utilization rate.

Your amount of debt, which includes your “debt usage,” (or “utilization”) as it’s called, accounts for roughly 30% of your credit scores. That’s more than any other single factor except paying on time, which accounts for about 35% of your score. Getting a higher credit limit can be a good thing — assuming you don’t increase your debt in tandem — because it results in a lower debt utilization.

In general, the lower your balances relative to credit limit, the better. Credit experts suggest keeping this ratio at 25% or less, but if you are trying to improve your score, you may want to aim for no more than 10%. (You do want to use at least one of your credit cards, though. Having no activity at all doesn’t offer much insight into your repayment habits, and unused cards are at risk of being canceled, which would reduce your available credit and lower your credit age, another major scoring factor.) Using a credit card payoff calculator like this one can help you determine how long it will take you to get out of debt.

If you are concerned that you might be using more than the optimal amount of credit, you can set up mobile alerts to let you know when you are nearing a set spending amount. You can also pay early (or multiple times per month) to keep the balance low. This can be particularly smart if you are rebuilding credit with a secured credit card and have a low limit. You may also want to consider getting another credit card to lower your overall debt utilization rate — you can shop for credit cards on Credit.com.

So is there any reason to even hesitate at the idea of a higher credit limit? There might be, if a higher limit will tempt you to spend more than you need to (or spend currently). A little self-knowledge can tell you if this is a danger.

Another time you may want to choose a lower credit limit is if you add an authorized user to your card. Adding someone to your account gives them access to your entire credit line. If you intend to give your child, or a significant other, access to your card, it might be wise to limit the damage that can be done if he or she doesn’t handle it as responsibly as you hoped. (You can also set up credit alerts to let you know when the card is used.)

Finally, if you co-sign a card application, be aware that this card will affect your credit as if it were your own. That means the credit limit, any late payments, etc., could affect your score. And, unless the terms and agreements say otherwise, the credit limit can be changed without your knowledge or approval if the primary borrower is at least 21 years old.

It’s one more reason to keep tabs on your credit scores. Credit.com’s free credit report summary can help you see how your debt usage is affecting your scores, how much of your available credit you’re using and how your debt usage compares to your peers.

More on Credit Reports & Credit Scores:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • JandC0723

    I am new to credit so I recently got two cc’s. One of my cards got a increase from 500.00 to 1500, and the other from 300 to 800. I only charge tops 10.00 a month on each and pay off as soon as the statement comes. My question is, should my credit line increases cause my score to increase? Also, I keep reading I forums that people with the best scores have about 7 credit cards, how many do you recommend for top score ability?

    • http://www.Credit.com/ Gerri Detweiler

      It sounds like you are on a solid path. I don’t believe you need to load up on credit cards. At some point it may make sense to get some kind of installment loan such as a car loan or personal loan, but it’s not urgent. If you get your
      free credit score from Credit.com you will get an action plan for your credit as well.

      • JandC0723

        Thank you for the information. I already have a car loan. Car loans are pretty much the only credit I’ve ever had before these two cards. I really have no interest in having a bunch of credit cards, so I’m very happy with your response, Thank you again. Should I see a score increase with my new credit limits?

        • http://www.Credit.com/ Gerri Detweiler

          Good to know. Credit limits don’t directly increase your credit scores, and since your utilization is already low then you may not see much of an increase. But it’s a good sign that they are raising your limits!

          • JandC0723

            Thank you for your help. Your advice is always appreciated

          • http://www.Credit.com/ Gerri Detweiler

            You’re most welcome! Keep us posted on your progress – we’d love to be able to feature you as a success story in the future. :)

      • WBEL

        I have seen that my score could be improved if I had a loan and was paying it off, showing that I was a good consumer. I do not have any debt but I need a loan to improve my score. It was my weakest category on my free score from credit.com. Iwant to improve it (my score) but dont want to pay for it.

        • http://www.Credit.com/ Gerri Detweiler

          That’s understandable. Then your best strategy may be to just continue to do what you are doing.

  • Tyler-James Simpson

    I have a default account under my name which is an error and I am currently in the process of getting this removed as it’s the only negative on my score
    My question is
    If this is removed will my credit score show as if this never happened ?

  • Tekkenfighter123

    My credit card increased my limit without telling me. So now my score dropped like 14 points. I know it will go back up, and I still have really good credit even with the drop. I just don’t like something happening when I have no say.

  • sin

    I got a letter in the mail saying my credit limit was increased on of of my cards I’ve been with for almost 4 years. It was my driest credit card at 19 and I don’t have a balance on it (Victoria secret) I usually pay with the credit card in the store then immediately pay my balance off with cash or half , and do an automatic payment for the rest of the balance later on.

    Anyway, I went to check my balance online and it told me my limit was 250 (although the letter said they increased to 300) and when I went to check my score and it told me that one account has lowered my limit so it affected my score. So I’m a really upset that A. I didn’t even apply for a higher limit and they gave it to me just to take it away before I got the chance to use it? I didn’t think that was possible because I’m really trying to increase my score and that just sucks.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team