In this first installment of our multi-part blog series about how (and why) to request a credit limit increase with various banks and financial institutions, we’ll examine how to go about requesting an increase with American Express. Perhaps the most important thing to remember as you read this blog (and subsequent ones in the series) is that when it comes to requesting a credit limit increase with any financial institution, it’s not the how part that matters most – it’s the why. There are good reasons to request a credit limit increase, and there are bad ones, and understanding the difference between the two is critical.
Why increase your limit in the first place?
Let’s get this out there right off the bat: Requesting a credit limit increase to go further into debt is not a smart thing to do. As you probably well know, failing to pay off your credit card in full and paying big money in interest each month is not a great way to build wealth. So, if you’re requesting a higher credit limit just to borrow more money on non-essential purchases each month, you should probably reconsider.
There are two good reasons to request a credit limit increase. First: you use your card responsibly, want to earn more rewards and do not have enough credit limit. The second (and related) reason is to lower your overall credit card utilization rate. Your credit card utilization rate is a measure of how much of your available credit you use each month. The math is pretty simple – just divide your total credit card balance by your total credit card limit. So, if you have a $5,000 balance and a $20,000 credit limit, your credit card utilization rate is 25 percent. Most financial experts advise maintaining a utilization rate of no higher than 20-30%, across all of your cards.
Lower utilization rate = better credit score
Lowering your credit card utilization rate is important because there’s a strong correlation between your utilization rate and your credit score because it accounts for 30% of your overall credit score. Now, credit scores are based on complex scoring algorithms that take many factors into consideration, so it’s impossible to specify the exact impact of your credit utilization rate on your overall credit score. But what we know for sure is the lower your credit utilization rate, the better your credit score is likely to be, and the easier it will be for you to borrow money at the lowest interest rates. So, going back to the hypothetical example above, if you were to charge the same $5,000 each month, but get your credit limit raised from $20,000 to $30,000, your utilization rate would drop from 25 percent to down under 17 percent. That’s a good thing.
How do banks decide?
Of course, the decision to raise your credit limit isn’t solely yours. Your credit provider has to agree to the request. There’s no great mystery here. If you have a clean credit history, a healthy income (relative to how much you charge each month), keep your monthly balance low, and make your payments on time, chances are you’ll have your request approved. In fact, if you’ve proven yourself to be a reliable borrower over a prolonged period of time, many financial institutions will proactively raise your credit limit without you even having to make the request. On the flip side, if you carry a large balance, have a checkered credit history, and have been inconsistent about paying your monthly bill on time, chances are your lender will be hesitant to increase your credit limit. If you fit into the latter category, you’re best served spending time cleaning up your financial act and proving yourself a reliable borrower before requesting an increase.
Requesting an increase from American Express
The good news is we live in a digital world, one where institutions like American Express have made it fast and easy to request a credit limit increase right online with just a few clicks. Start by logging into your account at www.americanexpress.com.
Once you’ve logged in, click on Account Services.
Next, click on Credit Management.
From there, click on Increase Line of Credit.
You’ll then be asked to enter your 4-digit personal code, usually found on the right side of your card, just above your credit card number.
Finally, you’ll be taken to a page where you can formally request an increase to your line of credit. Note that you’ll have to enter both your new desired credit limit and your total annual income.
For those who prefer good old-fashioned human interaction, you can also request a credit limit increase by calling the American Express customer service line at 1-800-528-4800.
A few housekeeping items to keep in mind that are specific to American Express:
- You cannot request a credit limit increase until you’ve had your American Express card for more than 60 days.
- If your request is approved, you’ll need to wait at least 6 months before you can request another increase.
- If your request is denied, you have to wait at least 90 days before you can make another request.
- In order to maximize your chances of approval, it’s generally recommended that the new credit limit you request is no more than three times the size of your current limit.
- One of the best features of American Express is they don’t do a hard pull of your credit report for credit limit increase requests, meaning your credit score won’t be adversely affected.
Your credit limit was increased. Now what?
Let’s assume all goes well and your credit limit is increased. What should you do next? Ideally, nothing. If you started this process for the right reason – to improve your credit score by lowering your utilization rate – then having your limit increased should have no bearing on your spending habits. Simply continue spending at the same level you were before your limit was increased, and let your credit score reap the benefits.