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Up until 2 months ago or so I had a credit score in the low 800s range. I recently opened a new credit card account and put a bunch of debt on it which I plan to pay off over an extended period. This debit has put my credit card utilization at ~20%, where as previously it was under 10%. According to credit karma that caused a drop of around 70 points to my credit score bringing me to ~730.

If I was to get an increase of on my credit limits such that my utilization is back under 10%, would that bring my credit score back up? Would requesting a credit limit increase from the bank also affect my credit score in a negative way?

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    Why do you care what your score is? – quid Nov 25 '16 at 21:03
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    @quid For the same reason everyone wants a better credit score.... for better terms on financial matters. Why is this relevant to the question? – David says Reinstate Monica Nov 25 '16 at 21:57
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    If you're not shopping for debt right now, there's no point to microanalyzing your credit score. 730 is still comfortably above average and your score will increase as you pay down the debt you loaded. Unless you need a mortgage or car loan or some such in the very near future this effort is pointless. – quid Nov 26 '16 at 0:23
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    @quid I am considering getting a big loan soon, but again, this is irrelevant to my question. The question is will my theory work. – David says Reinstate Monica Nov 26 '16 at 1:15
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First, it is important for you to understand that there are multiple credit scores in the US. FICO is the credit score usually used by lenders to evaluate potential borrowers, but Credit Karma shows you VantageScore 3.0. Both scores use the same 300-850 scale, but differ in the actual formulas used. The exact formulas are proprietary secrets, and we can't know if your FICO score has been impacted as much in the last two months as your VantageScore. However, the credit score companies have revealed the types of things that impact your score.

In the last two months, you have done several things that lower your score:

  • Opening the new account required an inquiry on your credit report (hard pull).
  • Opening the new account lowered your average age of accounts.
  • Adding debt on your new account has increased your utilization.

For the first two items, these will both get better with time, and there isn't really a way to eliminate them faster.

Utilization, however, is an instantaneous number with no history. When you pay off your debt, your utilization will improve immediately, and your score will improve with it.

It is difficult to say how a credit line increase would affect your score. It has the potential to reduce your utilization number, but will also likely add another credit report inquiry.

The best way, in my opinion, to improve your score is to pay off your debt and pay your bills on-time. If you do that, your score will take care of itself, as it had for you before you added "a bunch of debt."

Even at 730, your score is still considered excellent. Trying to raise it by adding accounts and raising your available credit higher than you need doesn't really give you an advantage.

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It's hard to know the precise amount by which your score would change, because credit scoring methods are proprietary. The scores provided by sites like Credit Karma are simulations. They may not reflect your actual score by TransUnion or Equifax. (Credit Karma does not use the FICO scoring model used by Experian.)

However, it is safe to assume that lowering the utilization ratio, either by applying for a credit limit increase, or paying down your balances, would improve your score. But it is not clear how much it would improve in each case; this depends on other factors.

Requesting a credit limit increase may or may not constitute a hard inquiry, but in general, it does (and should). A scoring model should properly reflect your creditworthiness in the context of requests for a higher limit on an existing account.

All that said, if you care that much about your score--and you probably shouldn't--then the proper course of action is to actually behave in a way that demonstrates your creditworthiness, rather than to "game" your score. That means lowering your utilization by actually paying off the debt.

The fixation on credit score, rather than the content of the credit file, is something I have written about previously as largely counterproductive. You should care a lot more about what is written in your credit files, rather than just a numeric score.

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