For conscientious consumers, request a higher limit on a credit card can seem like a daunting task – one that requires picking up the phone, making a case, and risking rejection. But in reality, this process is generally quick and hassle-free. And these days you can often get it all done in seconds online or through your transmitter’s mobile app without ever making a call. Here’s what to expect.
Whether you call your issuer to request a raise or request one online, you will be prompted for certain personal information, particularly about your income and debts. Indeed, the 2009 Credit Card Act requires issuers to consider a customer’s ability to pay “based on the consumer’s income or assets and the consumer’s current obligations” before opening a new one. credit card account or increase the limit of an existing account.
“A lot of customers don’t realize [income is] a consideration of what your line is and what increases to your line of credit, ”says John Grund, Managing Director of Accenture Strategy, a company that provides advisory services to banks and payment providers, among others companies. “It adds a wrinkle that didn’t exist ten years ago.” It also explains why issuers can periodically ask cardholders for income updates; this information is used to proactively increase limits, he notes.
If you’re asking for a raise, be prepared to answer a few questions about your income, debt, rent or mortgage payments, and employment status.
A quick response, most of the time
These days, credit card limits are usually determined by sophisticated algorithms at lightning speed, not by people who think slowly about cardholder finances.
“In most cases, I would describe it as highly automated,” Grund explains of the process of increasing credit limits. The request may take longer in some cases, for example, if you have recently changed your address and the information does not match. credit bureau or bank records, or if you’ve asked for a much higher limit than you have, he notes. But often times, you’ll get a “yes” or “no” almost instantly, whether you apply over the phone, online, or in a issuer’s app.
Part of the reason is the sophisticated decision-making software used by banks today, says Naeem Siddiqi, author of credit scoring books and senior advisor for risk and quantitative solutions at SAS, a company that sells such software to banks.
If you have called your issuer to request a credit limit increase, a customer service agent may submit your request to such a decision-making system. This system “enforces a set of rules and policy templates and sends a decision back to the customer service agent in less than a few milliseconds,” says Siddiqi.
Hard pull, in some cases
When you request a higher limit, some issuers do what is called a “Hard shot.” Firm drawings, or firm inquiries, are triggered when you apply for credit and an issuer checks your credit reports to make the decision. This can temporarily lower your scores. In other cases, issuers will perform a “soft pull” when you request a higher limit, which does not affect your credit scores. Before submitting such a request, your transmitter can tell you up front whether it will count as a hard or soft pull. If it’s not clear, you can ask.
In some cases, your issuer may not need to obtain new information from the credit bureaus to make a decision, and this will count as a “soft pull”. Typically, banks in the United States run a credit limit increase algorithm for their customers every nine to 12 months to proactively give limit increases, says Siddiqi. Your transmitter may have all the necessary data from these previous soft pulls.
“If I reviewed this algorithm very, very recently, and the decision is recent… then I don’t need to shoot you,” Siddiqi says. “But if this decision is nine months old, and the last desk I have on you is nine months old, I’ll put you a new one.” These decisions may vary depending on the internal policies of issuers, he notes.
Asking for a higher credit limit may temporarily lower your credit scores, but receiving one can strengthen them. With more credit available, it’s much easier to reduce your credit utilization rate, or the percentage of available credit you use, which is a factor in your credit scores. As a general rule, it’s a good idea to use less than 30% of your limit – the lower the better. Lowering this number may be easier with a higher limit.
This article was written by NerdWallet and was originally published by Forbes.