About 5 months into my first credit card experience, I decided that it was time for a credit line increase. No, I wasn’t racking up debt and no, I didn’t have any large expenses that made the credit increase necessary. I wanted an increase because when you have $1,000 each month, it’s easy to have over a $2,000 balance right before the bill is due. With a credit limit of $5,000, that equals a 40% utilization rate, something I’d definitely prefer to stay below. Add in the fact that Bank of America mysteriously skipped a billing cycle and that rate jumps to around 60%.
Sure, it’s not always that high and only if my accounts are checked on those days would it be marked that high, but I’d like to avoid the worry altogether and assure myself that my credit rating is as good as can be. It’s not imperative now, but it’s always good to keep a good credit score.
We know that hard inquiries negatively affect your credit score, so I decided that while I wanted to increase my credit line, I wouldn’t do it if it meant a hard inquiry.
Also, I have great news. Bank of America has one redeeming quality: it makes increasing your credit line very easy.
After logging into my account, I clicked on the “Request a credit line increase” button, filled out the form, and requested another $2,500 in credit.
The next day, I received a call to verify my job, income, and reason for requesting an increase (I have heard that saying that you’ll be making some large purchases works well).
I was approved immediately with only a soft inquiry and suddenly my utilization rate dropped. That same 40% utilization rate suddenly turned into less than 27% on the worst days, something I can definitely accept.
It’s only a small part of my credit score, but every bit helps and good habits now will help when we need it.
I didn’t realize there was a difference between a soft inquiry and a hard inquiry — good to know!
@RainyDaySaver, A huge one! One affects your credit score and one doesn’t. Make sure to click on the first link in the post, it’s my guide to credit scores!
That’s a great tip! It’s important to keep that utilization rate down, and if that means asking for a credit line increase, I’m all for it. It’s also good to know that B of A pulls it as a soft inquiry, makes me wonder if other banks do something similar.
Curious, did you verify an positive impact to your credit score?
I only ask because when I last pulled by credit report Fico gave me access to a credit simulator. I found when I reflected more than 10% debt utilization my score dropped, when I reflected 0% utilization my score dropped, when I had 2-5% utilization my score was highest… go figure?
Just wondering how much of a difference 27% vs. 40% made?
@LeanLifeCoach, I didn’t get to use a simulator, but the truth is that 27% and 40% aren’t my only options. On average, it would be 20% vs 30%. At different points in the month, it is different, but I was taking the general rule of lower is better.
I’m trying not to micro-manage it because I don’t need the credit now, but I imagine in the future having a higher credit limit will help. If I can raise the limit a few thousand dollars every 6-8 months, I should be better off in the long run.
I guess we’ll never know exactly how FICO works..
Just be careful – this trick works when you are a newish customer, mainly because lender experience shows that if you raise the credit limits of new customers, they tend to be very grateful, do it again, and gradually the debt creeps up (though initially the customer never utilizes more than 60%).
It’s only later, when you have a lot of debt, that you start struggling – and then find the same helpful lenders turn mean.
I’ve come to the conclusion that the best advice to give to people starting out is to simply not accrue the debt in the first place. Don’t fixate so much on credit scores and look at the big picture – how much the debt is costing. If you are paying interest on the debt, you have too much debt. Just a bit of advice from someone who has been around the block a bit.
A single hard inquiry doesn’t necessarily have an impact on your credit score. It’s a group of hard inquiries in a short period of time that causes the drop.
@Sean @ Financial Scams,
You are correct if by “group” you mean 3 hard inquiries, and by “short period” you mean 2 years. It is very easy to lose track of inquiries because they are pulled for almost everything now-a-day. Cell phone companies pull them, electric companies, landlords, employers, banks(when you get a new line of credit, or increase your line) and so-on. You have to be very careful to not overdo it.
How did you know they were only going to do a soft credit inquiry?
@Oren @ Oren’s Money Saver, I called the bank beforehand to make sure.
I know I have made more inquiries than that over 2 years and my credit doesn’t seem to be adversely affected, but I do know I have a high credit rating.
We need to be careful with the banks and how we have the ability to increase our credit limit, soft inquiry or not. This is one out of a thousand tricks they use to fool us into using our credit cards more and more. Working in the debt settlement industry, it is a common hardship for me to see a client who had this same particular situation and months later, they found themselves under water and struggling with their monthly payments.
Once a bank has established a credit relationship with a consumer the bank can access your report without logging a hard inquiry.
Hard inquiries are used for new account relationships. If you wanted to increase your line by opening a new credit card with the same bank, that would have been a hard inquiry.
Most banks routinely review all accounts to proactively change credit limits. Soft inquiries are logged.