Why You Should Probably Say Yes to a Credit Card Limit Increase

By Julien Brault, founder of MooseMoney.

When your credit card company offers you a higher limit, your first instinct might be to hesitate. But in most cases, accepting a credit limit increase will lower your credit utilization ratio, which can improve your credit score. The key condition is straightforward: you should not increase your spending just because your available credit went up. If you can commit to that, saying yes is almost always the right move.

How Limit Increases Impact Your Credit Score

So, does increasing your credit limit will help you increase your credit score? Yup! Your credit utilization ratio, which is your outstanding balance divided by your total available credit, is one of the heaviest factors in how your score is calculated. If you carry a $2,000 balance on a $5,000 limit, your utilization sits at 40%. Bump that limit to $10,000 without changing your spending, and utilization drops to 20%, which is well under the 30% threshold most experts recommend. 

Julie Kuzmic from Equifax Canada confirmed this logic. "An increase in the credit limit on a credit card account will make that utilization look lower if the person is still carrying the same balance. So, a limit increase can be helpful in terms of the credit score calculation, but it really does depend on the other information that's on the person's credit report," she explained.

However, there is one legitimate reason to decline. "If you're offered a credit limit increase by your credit card company, it's because they believe that you can afford that level of credit. That said, if you feel that by having a bigger limit, you might be tempted to use it and then find it hard to pay back, then I totally understand why you choose not to take it," noted Richard Godyer, Chief Credit Risk Officer at Neo Financial. 

How Limit Increases Actually Work in Canada

Canadian regulations require your consent before any credit card issuer can raise your limit. Godyer explained the legal framework clearly. "We cannot increase your limit unilaterally in Canada. We can offer you a limit increase, but you must accept it. In Quebec, we're not even allowed to offer a credit card limit increase; the client needs to ask for a limit increase," he said.

The process varies by issuer, but many companies proactively monitor your account behaviour and extend offers when they believe you qualify. At Neo Financial, for example, this review begins early in the relationship. "Starting three months after you've received your Neo credit card, we constantly look at your behaviour to see whether we think you could manage a higher credit limit. And if we think you could manage a higher credit limit, we will send you a message in the app and we will send you an email offering you a limit increase," said Godyer.

One common concern is whether requesting a higher limit will trigger a hard credit inquiry that temporarily dings your score. The answer depends entirely on the issuer. When your credit card company pre-approves you for an increase through a soft check like Neo Financial does, there is no impact to your score. "Asking for a credit card limit increase at Neo doesn't affect your credit score at all, since we are not doing a hard credit check. We'll have a recent credit score on file, but what we mostly use to make the decision is our internal data," stated Godyer.

The size of the increase will depend on several factors. "A credit card limit increase at Neo could be anything from a few hundreds to $4,000, depending on how big your existing limit is, how much we think you could afford and how good your payment behaviour is," said Godyer. If the offered amount feels too high, you are not locked into an all-or-nothing decision. "If we contact you with an offer for a credit card limit increase, you can always ask for a smaller increase. You can always say that you would actually like half of that or whatever it is you would like as a credit card limit," he noted.