Credit limit increase vs. getting a new card

Sometimes as you grow, you outpace your available credit. Additions to the family or unexpected expenses may have you using your credit card more often—or a new job may have expanded your buying power.

Whatever you have going on, expanding your credit may offer more flexibility in your day-to-day spending. Adding a line of credit or asking for a credit limit increase on an existing credit card are two options that may help.

The first way to access more credit is to request an increase. A request starts an approval process from the lender, as detailed by the Federal Deposit Insurance Corporation (FDIC). Generally, the company will review your credit history and consider how much additional credit you asked for. As part of the process, the company may also look at your credit scores, how long you’ve had your card and any previous requests.

Getting approved for an increase may be easier if you stick to good credit practices like paying your bills on time and avoiding your initial credit limit. Keeping your account information up to date, especially your income, is another signal to companies you can be trusted with increased credit.

Sometimes a creditor may come to you with an offer to bump up your limit. Usually, these types of credit increase are managed via automated programs. But in general, they are offered to customers who have demonstrated positive financial habits and behaviors. That includes keeping income information current and remaining in good standing.

If you remember applying for your existing credit card, the application process for a second may follow a similar process, with creditors examining your credit score to determine if you’re a good candidate. If you’re approved, a new line of credit could offer more than just additional access to credit.

Your new card could also offer additional perks or the chance at better rates. If you’re planning a trip, you could earn rewards miles to put toward it. Cash-back rewards could add up over time if you use the card for everyday purchases like gas and groceries.

Whether you open a new line of credit or ask for an increase, there are a few universal things to keep in mind.

1. Hard inquiries: When you open a new line of credit or ask for a credit increase, you could run into something called a hard inquiry. Also called hard pulls, these inquiries will affect your credit score. So be mindful of how many credit requests you make. 
2. Credit utilization: If approved for additional credit, understand how it could affect your credit standing. Credit utilization is the ratio of how much credit you use to how much you have available. Additional credit could get you in line with the Consumer Financial Protection Bureau’s recommendation to keep your ratio under 30%. 

Still deciding between a credit increase vs. a new credit line? Consider taking some time to really think about why you are applying for more credit. If you’re happy with your current card, asking for an increase could be the right move. If you’re looking for additional perks or a better rate, finding a new line of credit may be the right option. 

No matter what you choose, always remember to use credit responsibly and spend within your means.