Updated article
Originally published 04/2017
Building credit takes time. You can quite literally go grey while watching your FICO scores crawl toward a perfect 850, or you can try this quick-draw tip to help speed up the process.
In the past I’ve shared some pointers for building up credit from square one, however, today’s trick is one you’ll want to use after you've opened up at least one credit card.
What’s the trick, cowboy?
This credit “cheat” should become an annual habit, starting a year after you open your credit card.
The trick: increasing your credit limit.
This is done simply by logging into your credit card account (I do it on my banking app - see more about why below) and requesting that your creditor raise the limit on your preexisting account.
How does this help my credit scores?
The answer is a bit technical. The FICO credit scoring system heavily rewards what’s called a low “debt-to-credit ratio” (note this is not the same thing as a debt-to-income ratio).
In simple terms, FICO rewards you for only using a very small percentage of your available credit. So the more credit you have available on your credit cards, and are not using, the better.
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Owing money on credit accounts doesn't necessarily mean you're a high-risk borrower with a low FICO® Score. However, when a high percentage of a person's available credit is [being] used, this can indicate that a person is overextended, and is more likely to make late or missed payments.
”
-FICO
Most people try to improve their debt-to-credit ratio by paying down their credit card balance. While this is still a good idea, the other *easier and faster* way is to increase your credit limit. It’s also a superior option to opening up a new credit card account in order to get more credit, because opening new accounts actually lowers your scores.
"Back away from the credit reports, Pardner"
Won’t this hurt my credit scores too?
No. It’s a common myth that every time your credit reports are pulled, your scores drop. The reality is that most credit pulls have no impact on your scores. Your creditors will likely pull and review your credit report, but this review is only a “soft inquiry.” Update: In recent years, more bank reps and live agents have been using these requests as an opportunity to sell you a new product. Avoid the sales pitch by submitting your request through your credit card app or online profile."
What if they say “No!”?
If your credit card company determines you are too big a risk, they will say “no” to your request. Fortunately your credit score will not be affected. I know this because I’m a bonafide credit wizard, but also from personal experience...
Confession Time!
I was once declined when I requested a credit increase. I had recently been laid off and, although I had money in savings *show-off* I wanted to increase my credit limit so I could be extra prepared for a worst-case scenario.
Unfortunately it had only been about 10 months since my last request for an increase. I thought the 1-year rule wouldn’t be so hard and fast, but I was wrong. I was denied because my last increase had been too recent. Either way, there was no fallout, except my gently bruised pride.
Unrelated note: I've never been a fan of Clint Eastwood
Make Like a Nun and Get Into The Habit
Moral of the story is that requesting increased credit limits is a risk-free way to improve your FICO scores. Like many good financial behaviors, you can best benefit by making this a regular habit.
So while it’s on your mind, break out your calendar and add an annual event reminder. Maybe you can even pull a pro move and set the reminder to coincide with your annual review of your free credit reports!
As always, I'm happy to help you navigate this process. Contact me here to set up a free phone consultation or a *not free but subject to promotional pricing* Credit Review Session.
Got questions or comments about this article? Want to troll me?
The comment section below is just the right place!