Low credit limit blues

How to deal with a low credit card limit

Your new credit card has arrived but the limit is lower than you expected. How to make it work?

1Pay on time and in full Focus on establishing a history of on-time payments and responsible borrowing. Banks give you a low limit because “they don't know who you are,” says Naeem Siddiqi, an author of books on credit scoring and the director of credit scoring at SAS, a company that provides major banks with analytics software for making credit decisions.

Banks typically reevaluate your account every nine to 12 months, looking at factors such as scores, payments, the percentage of available credit you're using and how long you've been a customer, and may increase your limit at that point, Siddiqi says.

Missing payments or paying only the minimum, meanwhile, could thwart your progress toward establishing a positive credit history — and cause you to rack up interest charges and penalty fees.

2Keep your balances low Using too much of your available credit — which is easy to do with a low limit — can drive up your credit utilization ratio and sink your credit scores in a hurry.

To keep your scores healthy, a rule of thumb is to never use more than 30 percent of your credit card’s limit. Here’s how:

• Make multiple payments each month. Your credit utilization ratio is based on what your balances are when your issuer reports them to the credit bureaus each month. • Borrow sparingly. Keep in mind that you can build a good credit history simply by charging a pack of gum or cup of coffee each month to your credit card and paying it off in full and on time.

3Don’t be afraid to ask If

your limit hasn’t been automatically increased after several months of responsible borrowing, ask why.

“It’s just like going to your boss and asking for a raise. If you’ve not been doing well, your boss is going to say no,” Siddiqi says. But if you’ve been paying on time and borrowing responsibly for months, or if your income recently increased, your chances of getting approved for an increase are better.

Requesting a limit increase can trigger a hard pull on your credit report, which may cause your credit scores to drop by a few points in the short term, but the benefit could be worthwhile in the long run.