How More Available Credit Could Boost Your Credit Score

Introduction

If you’ve had a credit card for some time, you’ve likely received an offer for a credit line increase . Maybe your credit limit was increased after an automatic review by the card issuer.

Or perhaps you’ve thought about adding another card to your wallet, so you could use more credit or to take advantage of better credit card rewards.

While some people may shy away from credit line increases or new cards out of concerns that they might overspend, these options can be beneficial most of the time — and in more ways than one.

Of course, the most practical upside is being able to spend more on your credit card. But you could also be boosting your credit score, simply by having more available credit.

Understanding Credit Utilization 

So, how can your available credit help your credit score?

Well, several factors impact credit scores, and one of the most influential is related to your available credit.

Credit utilization ratio (CUR) is the second-most important factor in determining a credit score, right after payment history. CUR represents how much of your credit you’re using, and it’s calculated with a simple mathematical formula:

Your Total Credit Balance ÷ Your Total Credit Limit

Now, that specifically calculates the CUR for an individual credit card, but lenders may also consider the aggregate CUR of all your credit cards. Experts recommend keeping your aggregate CUR below 30% and ideally under 10%. That’s right, it’s best to only use a small portion of your available credit.

That may sound odd, but it makes sense. See, when assessing credit reports and credit scores, what lenders are actually assessing is their risk level. They want to know that you can repay what you borrow. A lower CUR signals that you manage your credit responsibly by not overextending yourself and it makes you look less risky to potential lenders.

Boosting Your Credit Score Through Available Credit

Now that we’ve covered how CUR works, let’s see how available credit can play into your credit score.

Let’s say you have one credit card, and it has a $1,000 credit limit. If you use $600 of that $1,000 limit, your CUR would be 60%.

Over time, you accept some credit line increases that bring your credit limit up to $2,000. But you still only use $600 of your available credit. Thanks to that extra available credit, your CUR would be at 30%, hitting that suggested amount.

Basically, the same balance is a smaller proportion of the new limit. That’s how having more available credit could help lower your CUR and, in turn, boost your credit score.

Simply getting more credit isn’t enough to boost your credit score, though.

Let’s say you start using $1,000 of that $2,000 limit. Your CUR would be 50%. That would offset the benefit your credit score could have received.

Using our example, you can see that the best way to put that newly available credit to work… is by not using it. A little ironic, right?

Bottom Line

Credit is a highly personal tool. If having more credit could tempt you to spend more, then accepting a credit line increase or applying for a new card may not be the best thing.

But if you’re confident that you can manage credit effectively, having more available credit is one of the simplest ways of boosting your credit score.

If you’re looking for a new credit card — whether it’s to build credit or get rewards that better match your lifestyle — you can see if you pre-qualify for one. It only takes a moment and there’s no impact on your credit score for checking.