Does My Credit Limit Affect My Score?

Credit bureaus calculate credit scores based on information from your credit history. Factors such as your payment history, credit utilization, length of credit history, mix of credit types and recent applications all matter. But what about credit limits? Read on to learn more about how this factor impacts your credit score.

 

How Is a Credit Score Calculated?

Credit reporting bureaus vary slightly in credit score calculation. VantageScore® credit scores are calculated using data such as payment history, percentage of credit limit used, age and type of credit, total balances and debt, available credit, and recent inquiries and credit behavior.

A FICO® credit score uses similar data to determine your score, including payment history (35%), amount owed (30%), age of credit history (15%), new credit (10%) and credit mix (10%).

 

What Is a Credit Limit?

Your credit limit is the maximum amount of funds a lender has agreed to extend to you for revolving credit accounts, like a line of credit or credit card. Business credit bureaus measure your available credit, or the sum total of all credit limits for revolving credit lines extended to you. That figure will then contribute to a credit utilization calculation that affects your credit score.

 

What Is a Credit Utilization Ratio?

Your credit utilization ratio is the percentage of credit you’ve currently used in relation to the total amount available to you.

For example: You have a line of credit with a $5,000 limit and $1,000 balance, and a credit card with a $10,000 limit and $2,000 balance. If you divide the total balance for all revolving credit accounts ($3,000) by the total credit available ($10,000) and multiply that number by 100, your credit utilization ratio would be 20%.

In general, experts recommend keeping your credit utilization ratio to less than 30% of your available credit.

 

How Can I Increase My Credit Limit?

Lenders use a variety of information to determine credit limit increases, similar to the information you provide when you apply for credit. In general, good credit behavior can improve your credit opportunities, including credit limit increases. Contact your lender to see if you’re eligible for a credit limit increase.

 

How Can I Improve My Credit Score?

Paying bills on time and maintaining a responsible credit utilization ratio can help you improve your credit score over time. These actions have the biggest impact on your credit score across the major credit bureaus.

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Bonnie is a Chicago transplant who's committed to seeing the world on a dime. As an avid news junkie with an affinity for finance, she loves to help others do more with less.

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