When you consider increasing your credit card limit, it’s natural to wonder how this might impact your credit file. Here’s what every consumer needs to know.
What Is a Credit Enquiry?
A credit enquiry happens when a lender or credit provider checks your credit report. Enquiries come in two main types:
- Hard Enquiries: Occur when you apply for a line of credit or an increase to your credit limit. These are visible to other lenders and can temporarily lower your credit score.
- Soft Enquiries: Happen when you check your own credit report or when certain businesses check it for purposes other than lending. Soft enquiries don’t affect your credit score.
Will Increasing Your Credit Limit Trigger a Hard Enquiry?
In most cases, requesting a credit limit increase with your credit provider will result in a hard enquiry on your credit file. This is because the provider needs to assess your risk as a borrower before approving you for the extra credit, even if you’re an existing customer. This hard enquiry:
- It is recorded on your credit report.
- It may have a small and temporary negative effect on your credit score.
- Stays on your credit report for up to five years.
Exceptions
SOME credit providers, such as American Express, reportedly perform only a soft enquiry for limit increases. However, this is not guaranteed for all banks or cards, so always check with your credit provider before applying.
Multiple Applications Can Hurt Your Score
If you apply for multiple credit limit increases (or new lines of credit) in a short period, these will register as multiple hard enquiries. This can signal to lenders that you are seeking additional credit urgently, which may negatively impact your credit score and your ability to be approved for applications.
Tips Before Requesting a Credit Limit Increase
- Check your current credit report for accuracy before applying.
- Only request an increase if you truly need it and are confident in your ability to repay the higher limit.
- Avoid making repeated applications within a short time frame.
- Remember that your credit score is just one piece of your overall financial health; timely repayments, lower outstanding debts, and responsible borrowing all help maintain a positive profile.
Key Takeaways
- Most credit providers will perform a hard enquiry if you request a credit limit increase.
- Hard enquiries can slightly lower your credit score and remain on your credit file for up to five years.
- Avoid multiple applications in a short time to maintain a healthier credit score.
- Always check with your credit provider about the impact on your credit file before submitting a formal request.
By understanding these facts, Australian consumers can make more informed decisions about their credit, ensuring they maintain a strong and healthy financial profile.
