An increase in income can help your finances in several ways. Obviously, if you earn more money, you can invest or save more. It’s also easier to live on a budget when you have a higher income.
There’s one other thing increased income can do for you, though, that you may not necessarily think of. It could help you improve your credit score.
Now, there’s no guarantee that your card issuer will give you a bigger line of credit just because you say your income has increased. But there is a chance of it happening. And since it only takes a second to update your earnings with your card issuer and there’s absolutely no downside to logging into your account online and doing it, it doesn’t no harm in keeping your credit card company informed when you get a raise.
To deal with record inflation:Americans have opened a record number of credit cards
Low credit score:Bad credit can’t stop you from buying a home. But is it a good idea?
Notify your credit card issuers if your earnings have increased
If your income has increased, you will want to let your credit card transmitter. You can usually do this by logging into your online account and visiting the section of the website where you update your profile or where you update your personal information.
There should be a question in these areas of the website about how much you earn. Use it to report your new higher earnings.
Why does a higher credit limit improve your credit score?
So why would you want to tell your card issuers that you earn more now than in the past? And how could that potentially help your credit score?
It’s simple. When your creditors know that your income has increased, it could prompt them to increase your line of credit limit. This limit, which establishes the maximum amount you are eligible to borrow, is based on many factors, including your credit history as well as your income. When you earn more, your card issuer may decide that you have the right to borrow more.
A higher credit limit can have a positive impact on your credit score because it affects your utilization rate. Your credit utilization rate is the second most important factor used to establish your credit score, with only your payment history having a bigger impact. It is calculated by dividing the credit you have used on your card by the total amount of credit granted to you.
When your credit limit is increased because your income has increased, this will immediately translate into an improvement in your credit utilization rate. Say, for example, you had a balance of $100 on a credit card with a limit of $500. You would have a credit utilization rate of 20% ($100/$500). But if your credit limit was increased to $1,000, you would have a 10% utilization rate instead. Since a lower utilization rate is better, it could lead to an immediate increase in your credit score.
Motley Fool’s Offer
Check out The Ascent’s best credit cards for 2022: We are firm believers in the Golden Rule, which is why editorial opinions are our own and have not been previously reviewed, approved or endorsed by the advertisers included. The Ascent does not cover all offers on the market. The editorial content of The Ascent is separate from the editorial content of The Motley Fool and is created by a different team of analysts. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.