As a borrower, there must be innumerable confusion about what is the credit limit, does increasing the credit limit affect credit score, or what are the other factors about credit card limit etc. While some individuals ask to increase their credit card limit with hopes of automatically improving their credit score, the truth is a little more practical. Whether “increasing your credit card limit improves your credit score” entirely depends upon how you use it.
A credit limit increase has a double impact that may either positively or negatively impact your credit score. The determining factors are those associated with credit utilization. Hence, in this blog lets find out does increasing credit limit affect credit score?
First, let’s try to understand the math behind the above problem in simple words.
What Actually Changes When Your Limit Increases?
In addition, when a lender extends your credit card limits, there are two effects:
- Your available credit increases
- Your usage ratio changes
The total amount of credit you use also has a great influence on your credit score.
This is called credit utilization ratio
Utilization= Total Card Spending ÷ Total Credit Limit × 100
Lower utilization = Better score
Higher utilization = Risk signal
The Math Behind It (With Real Numbers):
| Credit Limit | Monthly Spending | Utilization | Score Impact |
| ₹50,000 | ₹20,000 | 40% | Slightly negative |
| ₹50,000 | ₹5,000 | 10% | Positive |
| ₹1,00,000 | ₹20,000 | 20% | Improves score |
| ₹1,00,000 | ₹60,000 | 60% | Negative |
| ₹2,00,000 | ₹20,000 | 10% | Strong positive |
Important Insight:
The spending didn’t change. Only the limit changed, and the score impact changed.
This is the reason why the credit limit increase only affects the credit score if the usage remains within control.
Is It Good to Increase Credit Limit?
Yes, but only under certain behaviour patterns.
It helps your score when:
- Just continue spending the money as before.
- You maintain utilization below 30%
- You don’t suddenly increase lifestyle spending
- Payments are on time
It hurts your score when:
- Spending increases as the limit rises
- You max out cards
- You apply repeatedly across cards
- You miss payments
So the actual answer to the question is it good to increase the credit limit:
The limit does not matter, only your discipline does.
The Hidden Hard Inquiry Impact:
It is possible sometimes for the lender to check your credit before approving an increase in your limit.
| Increase Type | Inquiry Type | Score Impact |
| Pre-approved increase | Soft check | No impact |
| Requested increase | Hard inquiry | Small temporary drop |
| Multiple bank requests | Multiple hard checks | Noticeable drop |
The drop might not be really severe and can range between 5-10 points drop, but too many requests can create risk signals.
When You Should Not Request A Limit Increase:
Avoid asking when:
- You are already using more than 50% of your card
- You recently missed to pay your EMI
- Your plans are to apply for a loan soon
- Your income has decreased recently
Because lenders may reject the application and rejection erodes the confidence in future lending approvals.
Why Banks Like Low Utilization:
From a lender’s perspective:
A person spending ₹90,000 out of ₹1,00,000 seems over spender and irresponsible in financial management
Someone using Rs 20,000 out of Rs 1,00,000 seems like a responsible spender and financially stable.
Both of them may receive the same salary. While credit scoring doesn’t merely involve income levels, it does involve stability in lending behavior.
Myth And Facts: Does Increasing Credit Limit Affect Credit Score
Here are some common myths, along with the real facts, about how a credit limit increase impacts your credit score.
Myth 1: Your credit score always improves when your credit limit increases.
Fact: A higher limit can only boost your score if you spend the same and end up with a lower credit utilization ratio. If you start spending more, your score might actually fall.
Myth 2: The higher your credit limit, the more banks trust you financially.
Fact: Banks may increase your limit based on your past behavior, but your ongoing usage and repayment habits matter more than the limit amount itself.
Myth 3: It’s safer to decline the credit limit increase.
Fact: Declining an increase may keep your utilization ratio high, which can prevent your score from improving.
Myth 4: More available credit automatically leads to overspending.
Fact: Overspending is based on personal discipline and not on the credit limit. Therefore, those who spend money properly will have higher limits without any increase in overspending.
Myth 5: Requesting a credit limit increase always harms your credit score.
Fact: If the bank performs a hard inquiry, your score will go down by 5-10 points, but only temporarily.
Myth 6: Maxing out your card is acceptable, especially if you have a high limit.
Fact: High utilization, even with a large limit, may indicate financial dependence and hurt your credit score.
Myth 7: Not using your credit card at all gives the best score.
Fact: Low usage, i.e., very low percentages ranging from 1-10%, and on-time repayments are favourable, just like zero usage.
Myth 8: Credit limit increase is like receiving extra income.
Fact: The more the limit, the more the borrowing capacity, not the earning capacity. It must be treated as a safety buffer, not additional spending power.
The important thing to remember is: you can improve your credit score by getting your credit limit increased, but only with controlled and disciplined spending habits.
Final Thoughts About The Credit Limit Impact On Credit Score:
Ultimately, understanding how credit limit increases impact credit scores will come down to behavior rather than a hard number on a credit card statement. Increasing the credit limit has the potential to be a significant asset for those who are wise enough to capitalize on it by decreasing their credit utilization ratio, an important determinant of credit scores. However, this will occur only with constant spending habits.
In case there are higher expenses due to a credit limit increase, frequently paid EMIs, and minimum payments, the credit limit increase credit score impact is negative and not positive. In other words, the question is not whether it is good to increase credit limit, but how you will be able to maintain discipline even after you increase your credit limit. Here, you have to think of it as a financial cushion and not your income.
Hence, before you agree to the increase, it is always advisable to consider your repayment capacity, outstanding liabilities, and your budget. Most people today are opting to use financial tools, which helps in determining whether there are enough funds to meet your liabilities and helps in understanding the effect of borrowing on your finances before making any decisions.Also platforms like Olyv help you to check your credit score and make you aware about your financial behaviour. It is crucial to be prepared in small ways before the credit limit increase affects your credit score positively and not otherwise.
