Saturday, October 18, 2003

Will Requesting a Credit Line Increase Hurt My Credit Scores?

Requesting a credit line increase will prompt a review of your credit and could hurt your credit score. However, everyone's credit situation is different, and no one can say definitely if your score will be affected. Your score could drop by a few points or not at all. Most people apply for credit only a few times a year at most. Multiple applications for installment loans, credit cards and credit limit increases suggest that you are loading up on credit, and that could lower your score.

Inquiries

    A credit inquiry is placed on your report each time a creditor reviews your report. Applications for credit or for credit limit increases result in what is known as a "hard" inquiry. "Soft" inquiries occur when creditors make cursory reviews of your credit to consider you for special offers or to confirm that your credit score still meets certain standards.

Automatic Increases

    Soft credit inquiries often lead to periodic credit limit increases without you asking. Calling to request a credit limit increase usually leads to a hard inquiry, but not always. If you are concerned about hard inquiries ask about the card company's policy before requesting an increase, The representative will tell you if the request will result in a hard or soft inquiry. Paying all your bills on time while keeping balances low is the best way to qualify for automatic credit increases.

Excessive Debt

    Aggressively seeking credit limit increases can lead to excessive debt. Some don't people reject credit limit increases for that reason. Some will call the card company to insist that a credit limit increase be reversed and that they not receive future increases unless they ask. People with high credit scores often have high credit limits but very small balances.

New Accounts

    Opening a new credit card account is an alternative to seeking a credit increase. The new application will also result in a hard inquiry, but if approved, the credit limit may be much larger than any credit limit increase you might have received. The key is not to go on an application spree regardless of whether you are applying for new credit or for a credit increase. Building credit slowly while using it responsibly is best.

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