Does high credit utilization, coupled with paying off my balance in full each month, increase my chances of an automatic credit limit increase?

Question

The conventional wisdom I've heard is that spending close to your limit and paying the balance off in full each month will often lead to the credit card company increasing your credit limit automatically. I assumed this was because they expect that given an increase, you'll spend more and earn them more merchant fees. In this comment, Dilip gave another (related?) reason, in that your credit card company may do this to preempt you moving to another company, who presumably would give you a higher limit from the beginning.

Obviously, the effect of utilization on your credit score means you're probably better off asking for an increase instead of having high levels of utilization month after month in the hope your limit increases, but is this an actual phenomenon? Is it a standard practice for credit card companies to raise the credit limits of "deadbeats" who spend close to their limits?

I've never had this happen personally, because the one time my credit limit has been raised without my prompting, my utilization was low. On my very first credit card, I had high utilization (around 90%) and a low limit, but I had to ask the credit card company to raise my limit; it never happened automatically. Now, my utilization is well within the 1-20% range, so in the event my credit limit is raised without my asking, it still doesn't tell me anything about the "conventional wisdom."

Answer 1

As many comments implied, each bank probably has its own rules on what conditions create an offer of higher credit or automatic increase. My anecdotal evidence over the years confirms that a track record of charging right to a card's limit and then paying in full, resulted in the increased line. The card issuer is able to do a "soft pull" on the credit report which does not result in an inquiry, for the fact that they did it on their own and not at your request. It's in their best interest to do this (a) as they increase their potential profit by gaining a higher share of your card spending, and (b) to avoid losing you to other card offers if you have need to spend more cash each month.

The high utilization may hurt your score in the short run, but it adjusts as soon as you bring that down. Credit scoring is real-time.

Answer 2

My experience in getting an automatic increase is before the 2007-2008 crisis. I never asked for an increase, but over a 15+ year period all my credit cards increased their credit limits. Some by sending me a letter, some by telling me with a one line comment on a monthly statement "Congratulations..."

During the crisis one card reduced my limit, I suspect it was because of low utilization. They never said why, but the only one that dropped was the one I used the least.

In the last few years I have asked for one increase online and it was instantly granted. In another case they sent me a letter in the mail, but needed me to call them. It was a way to collect updated employment and salary information, because their facts were 15 years out of date.

I would think that the calculus has changed for the banks post-crsis. I also think they are making adjustments to the new fee structures and the rise of debit cards. It is unclear how they will manage the process of increasing credit limits based on usage patterns.