Your credit limit is a snapshot of your buying power. The higher your limit, the more you can borrow. A more credit line you have can help improve your credit score when leveraged correctly. But being able to charge more to your credit card isn’t always a good thing. You may be tempted to overspend, which could mean getting deeper into debt; we do not want that. Let’s discuss how credit limits work and the pros and cons of requesting an increase.

How do credit limits work?

The lender will give you a credit limit when you use a credit card. This is the maximum amount you can borrow. If you have a $2,000 credit limit, for example, you can’t charge more than $2,000 to your credit card. If you do, you’ll have to pay some or all of your balance before you can put additional charges on your card.

Credit card companies typically consider the following factors when determining your credit limit:

1. Your credit history
   If you have other accounts in good standing and a history of making timely payments, you’re more likely to have a more extensive credit line. The opposite is also true. If you have a prior bankruptcy or delinquent accounts on your credit report, that could lead to a lower credit limit or higher interest rate. Or, in some cases, your application could be declined altogether. 
2. Your income and debts
   This helps the credit card lender determine how much debt you can afford. Can you afford your monthly payments if you max out your card? 
3. Your credit utilization ratio
   This is the amount of available credit you currently use. Let’s say you already have two credit cards with a combined credit limit of $10,000. If you have $5,000 in total debt, your credit utilization ratio is 50 percent. The lower this ratio, the more likely you’ll have a higher credit limit. 

Keep in mind that your credit limit is different from your credit score. The information on your credit report determines your credit score, which tells lenders how creditworthy you are. A healthy credit score makes you more likely to get approved for new credit with the most favorable rates and terms. The most widely used credit score is the FICO Score, which ranges from 300 to 850. A strong credit score could open the door to a higher credit limit and allow you to get better rates when taking out a loan—like a mortgage.

Pros and Cons of Credit Limit Increases

Pros

1. Better buying power
   Not only does it provide more opportunities to cash in on credit card rewards, you’ll also have greater financial flexibility. Just remember that a higher credit limit is no replacement for a substantial emergency fund. And just because you can put more on your card doesn’t mean you should. You should always have a plan to pay for what you’re spending on the card. 
2. Credit score benefits
   Extending your credit limit will automatically decrease your credit utilization ratio, assuming you don’t incur any new debt. That’s good news for your credit. (How much you owe accounts for 30 percent of your FICO Score.) Using your credit card responsibly can also help strengthen your credit score in the long term. It’s typically best to keep your credit utilization under 30 percent. So, if you get your limit up to $9,000, you wouldn’t want to owe more than $3,000 on your card at a time. 

Cons

1. Potential for overspending
   Being able to charge more to your credit card could be a slippery slope. You might be tempted to spend more than you usually would—and get stuck in a debt cycle. 
2. Temporary effect on your credit score
   Requesting a credit line increase will likely affect your credit in the short term.

Reference
https://www.northwesternmutual.com/life-and-money/how-to-raise-your-credit-limit/.