Why did Credit Limit Increase Hurt my Score?

Anonymous · ‎03-01-2018

Hi Everyone,

I recently received a $3,000 credit limit increase from my credit card company without asking for it. I'm happy with the increase, but my FICO score has dropped 22 points as a result. I don't understand how this would harm my score... shouldn't it help it? Since I did not ask for the increase, they did not pull a hard credit inquiry, so why has my score dropped because of this? The automatic increase shows that I am responsible with my credit, so if anything, my score should have increased! If you know anything about this, or have experienced the same thing, please let me know!

HeavenOhio · ‎03-01-2018

Welcome!

Which flavor of FICO are you looking at, and where did you obtain it?

Credit limit increases (CLIs) don't directly cause score changes. Indirectly, a CLI can contribute to a score increase by improving your utilization. The only way I can think of that a CLI can contribute to a score decrease is if it involves a hard pull.

So something else has happened. Did your reported balances increase? Are more cards reporting positive balances?

Anonymous · ‎03-01-2018

Hi HeavenOhio!

Thanks for the warm welcome! The FICO Score 8 shows the drop. There were no other changes, and I had a 13% credit usage on my card at the time. Everything that I have read shows me that CLIs should help my score, not harm it, but this was the only change reported, and down went my score.

Kree · ‎03-01-2018

There are certain situations where a credit limit increase can harm your credit score. If your limit increases to over 50,000 the utilization no longer accurately calculates and can cause scoring issues.

~~Or if the CLI decreased your utilization to under 2% it could be reporting as 0%. Which could lower your score if it was the only account reporting a balance.~~

This one is a conjecture: potentially something else in your report changed at the same time that put you into a different scoring category. We believe you are scored, in part, in comparison with other people in your scoring category or 'bucket'. If your profile got moved to a new bucket you might have a lower score due to the move. For example if your Average Age of Accounts increased to 2 years, or your Age of Youngest Account aged to 6 months.

EDIT: added examples of innocuous changes that could cause rebucketing.

EDIT2: Might be wrong about 2% thing.

newhis · ‎03-01-2018

The drop was with Transunion, Experian or Equifax? Did you get an alert?

There are many variables to calculate score, some are always changing (at least the time-related).

DollyLama · ‎03-01-2018

Did you have only one installment loan that was recently paid off? If so, it will drop score, due to not having it in your credit mix. But I believe if this was the case, it might be more than just 20 pts.

Anonymous · ‎03-02-2018

@KreeOr if the CLI decreased your utilization to under 2% it could be reporting as 0%. Which could lower your score if it was the only account reporting a balance.

Can you elaborate on this a bit? I've never heard of under 2% utilization being seen as 0%. As long as there's a balance of $5 or so (even as low as $1 in many cases) whether a limit is $500 or $45,000 it should be viewed as 1% utilization and seen as an account with a balance, not zero.

OP, your score 100% did not drop because of your CLI, I can assure you that.

SouthJamaica · ‎03-02-2018

@Anonymouswrote:
Hi Everyone,

I recently received a $3,000 credit limit increase from my credit card company without asking for it. I'm happy with the increase, but my FICO score has dropped 22 points as a result. I don't understand how this would harm my score... shouldn't it help it? Since I did not ask for the increase, they did not pull a hard credit inquiry, so why has my score dropped because of this? The automatic increase shows that I am responsible with my credit, so if anything, my score should have increased! If you know anything about this, or have experienced the same thing, please let me know!

@Anonymous @Anonymous correctly points out, the credit limit increase did not cause a score drop. Something else is the culprit.

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Kree · ‎03-02-2018

@Anonymouswrote:
@KreeOr if the CLI decreased your utilization to under 2% it could be reporting as 0%. Which could lower your score if it was the only account reporting a balance.
Can you elaborate on this a bit? I've never heard of under 2% utilization being seen as 0%. As long as there's a balance of $5 or so (even as low as $1 in many cases) whether a limit is $500 or $45,000 it should be viewed as 1% utilization and seen as an account with a balance, not zero.

OP, your score 100% did not drop because of your CLI, I can assure you that.

I'm probably wrong then.

HeavenOhio · ‎03-02-2018

@Kree, I believe you might be thinking of the small balance waiver. That's when small balances are waived by the card issuer rather than bothering to bill the customer, resulting in a balance of zero being reported to the bureaus.

I believe that in theory, if one reported a balance of one cent on one card, it would count as 1% utilization. But because of small balance waivers, reporting a one cent balance would be tough to accomplish with most cards. If one wanted to test, it could likely be done with a card that doesn't report the statement balance, such as a US Bank card.