Should I get a new credit card or increase my credit limit?
Sometimes, as your financial situation changes, you outpace your available credit. Planned and unplanned expenses may mean you’re using your credit card more often. Or perhaps you got a new job or a raise, and your buying power has increased.
Getting a new credit card or increasing your existing credit limit are both ways to get more flexibility in your day-to-day spending. But which option might be right for you?
What you’ll learn:
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To increase your total available credit, you could try applying for a new credit card or asking for a credit limit increase.
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Neither option is necessarily better than the other. What’s right for you depends on your personal circumstances.
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When deciding how to access more credit, you can consider things like the impact on your credit scores and how many new credit applications you’ve made recently.
Reasons to consider a credit limit increase
One way to access more credit is to request a credit limit increase on an existing credit card.
As part of the approval process, your issuer will review your credit history and consider how much additional credit you asked for. They may also look at information like how long you’ve had the card, any previous credit limit increase requests you’ve made, and updates to your income or employment status.
Here are some potential benefits of getting a credit limit increase:
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It could lower your credit utilization ratio. The Consumer Financial Protection Bureau (CFPB) says you want to keep your credit utilization ratio below 30%. Increasing your available credit can help lower your credit utilization ratio, which is a good thing for your credit scores. But that’s only if you’re not increasing your spending at the same time.
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It won’t affect the age of your credit history. Opening a new credit card account can lower the average age of your open accounts, which has the potential to negatively impact your credit scores. But a credit limit increase won’t change the length of your credit history.
- It could keep payments simpler. If you’re planning to apply for more credit either way, getting it on your existing card means you wouldn’t have to keep track of another account. This could make paying bills and tracking your spending easier compared to adding a new account.
Reasons to consider a new credit card
The application process for another credit card may be similar to the process you followed when you applied for your existing card. Card issuers may look at your credit reports, credit scores and income to determine whether you’re a good candidate.
If you’re approved, a new credit card could:
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Offer valuable rewards. You might prefer a new credit card for the opportunity to earn rewards. For instance, if you’re planning a trip, you could earn rewards miles to put toward it. Cash back rewards, on the other hand, could add up over time if you use the card for everyday purchases like gas and groceries.
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Come with better terms. Your new credit card could come with a lower interest rate or an introductory APR. This might be beneficial, especially if you’re planning a large purchase or consolidating debt.
- Keep your credit utilization ratio low. Just like with a credit limit increase, a new credit card can lower your credit utilization ratio, which can be beneficial to your credit. But that’s only if you’re not increasing your spending at the same time.
What to consider before getting a new card or increasing your credit limit
Whether you choose to apply for a new credit card or ask to increase your existing credit limit, there are a few things to think about first.
Think about the potential impact on your credit scores
Both have the potential to affect your credit. That’s because an application for a new card will trigger a hard inquiry. And too many hard inquiries in a short period of time may have a negative impact on your credit scores.
Some lenders also conduct a hard inquiry for a credit limit increase, but Capital One doesn’t.
Analyze your spending habits
When you have more available credit, it might be tempting to spend more. But spending more could make it harder to pay off your balance in full. And carrying a balance can increase your credit utilization ratio and cost you in interest.
Factor in your ongoing need for more credit
You can also consider whether your need for additional funds is only temporary or occasional. Capital One never charges cardholders over-the-limit fees. View important rates and disclosures.
And if your account has access, you can use the Confirm Purchasing Power tool to check whether an over-limit purchase may be approved. Every user on a card can also disable the ability to spend over their credit limit in over-limit preferences.
New credit card vs. credit limit increase FAQ
Check out these answers to frequently asked questions about getting a new credit card versus getting a credit limit increase:
How often should I get a new credit card?
There’s no rule that says how often you can or should get a new credit card. But doing it too often might not be ideal. That’s because applying for a new card triggers a hard inquiry, which can affect your credit.
A single hard inquiry from one credit card issuer generally has a small impact on your credit scores. But multiple inquiries in a short period of time might have a more significant effect, according to the CFPB, and signal to lenders that your financial situation has worsened.
When should I ask for a credit limit increase?
You might be able to ask for a credit limit increase whenever you want, but it doesn’t necessarily mean you’ll get approved.
In some cases, a creditor may come to you with an offer to raise your limit.
If you want to learn more about Capital One policies, check out some additional frequently asked questions about credit limit increases.
Is there any downside to increasing my credit limit?
Whenever there’s an increase in spending power, there may be a temptation to overspend. But if that results in missing payments or carrying a balance, it could hurt your credit. That’s why the CFPB recommends paying off your balance in full whenever possible and applying only for the credit you need.
Capital One doesn’t conduct a hard inquiry when processing a request to increase a credit limit, but some lenders do. If that’s the case, you may experience a temporary dip in your credit scores.
Is it good to accept a credit limit increase?
In general, additional credit is usually offered or given to customers who have shown responsible financial habits and behaviors over time. You can learn about how Capital One handles credit limit increases in this article about Capital One’s credit policies.
Key takeaways: New credit card vs. credit limit increase
Requesting additional credit or applying for a new credit card are two ways you might increase your spending power. But it’s important to think about how your decision might affect your credit scores and overall finances.
If you decide a new card is the right move, you can see whether you’re pre-approved before you apply. It’s quick, and checking won’t hurt your credit scores.
