Everything you need to know about increasing your credit limit

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Max out your limit, the easy way.

Getting a higher credit limit can be a boon or bane, depending on your financial health. If you’re able to pay your credit card bill every month, getting a higher credit limit might work in your favor. Although, if you have difficulty paying your credit card bill every month, it is advisable that you don’t request an increase in credit limit.

For everyone who falls in the former category, this reduces the percentage of your credit card utilization, which in turn shows good health of the card. So, let’s discuss different ways in which you can increase your credit limit, and how it can help you in the future. Also, learn about the factors that banks keep in mind before approving an increase in credit limit.

There are typically two ways to get a higher credit limit; one where the bank offers the increase and one where you can request to have it increased.

Automatic Credit Limit Increase

Based on your purchase history and repayment efficiency, some credit card issuers automatically increase the credit limit. Other issuers review accounts periodically and increase the credit limit for cardholders who meet their criteria.

Limit Enhancement on Request

On the other side, despite following all good credit practices, some credit card issuers may not increase the credit limit, and therefore, you’ll have to ask them to do so. You can make the request in the following two ways:

  • Online Request: You can place an online request asking for a higher credit limit. Log in and look for an option to request a credit limit increase. Following your request, the bank will ask you for additional information such as monthly income, how much credit increase you need, and the reason for the increase.
  • Offline Request: Alternatively, you can also call the toll-free number posted at the back of your credit card or monthly bill and speak to a customer service representative to request an increased credit limit.
Make sure to bring your good credit behavior to notice. This may help you get a credit increase faster. Also, if you have recently been promoted or received a pay hike, let your bank know. By evaluating these factors, the bank may decide to approve your request for a higher credit limit.

How a Higher Credit Limit Can Help You

Having a higher credit limit can have many advantages from convenience in managing your account to free financing on large purchases and expenses.

Increased Spending Power

The most obvious benefit of a higher credit limit is your ability to spend flexibly when you have to make big purchases. When your credit card has a higher credit limit, you can make these payments all in one card without having to divide them among multiple cards.

Maintain Credit Score

Credit utilization is the amount of available credit in use which determines your credit score. If you’re a responsible cardholder with good credit, a higher limit can boost your credit by keeping the utilization low. Low utilization suggests that you’re living well within the finances available, while a high utilization suggests the opposite.

If you’re spending all the credit available to you even though you might be paying off the balance on time, it can hurt your credit score. The general rule of thumb for good credit utilization is to keep it under 30% of the credit limit available to you every month.1

Should You Be Applying for a Higher Credit Limit?

If you’ve evaluated your reasons thoroughly and made up your mind to apply for a higher credit limit, then you should go ahead. But if you’re still deliberating, maybe the following points can help you with factors to consider.

More Debt Potential

If you tend to overspend, it clearly indicates that you have a problem managing money. In such a case, the risk of potential debt increases, and a higher credit limit is more likely to harm you.

Consider the Timing

It’s generally a good idea to wait until you’ve got a promotion or a hike, have good credit, or a steady track record of being a responsible cardholder before you apply for a credit limit hike.

Inability to Get Other Loans

The more credit you incur, the less likely it is that other financial institutions will extend you additional credit in the future. Your assets and liabilities can support only so much, and a higher credit limit will make it less lucrative for lenders to loan more.

How Credit Card Issuers Determine Credit Limit

When lenders consider your creditworthiness, they look at your credit reports to examine whether you’re worthy of credit or not. The three critical factors which will have the biggest impact on your credit limit are income, credit score, and other obligations.

Income

Even though you might have an excellent credit score, if you don’t have enough income to substantiate it with, it is likely that your request for more credit will be declined. Lenders use your income to determine how much they should lend you, or even if they should lend you credit at all.

Credit Score

If you’re able to pay your bills on time, banks will be willing to give you a higher credit limit on your card. On the other hand, if you create a history of late payments, overdraft or other problematic circumstances with regard to managing the account, banks might not be willing to cater to your request.

Other Obligations

Utilizing the data of your credit report, banks can ascertain monthly payments incurred from other accounts (mortgages, student loans, and car payments, etc). Banks divide your minimum payments by your income to understand how much credit should be given. If banks find the obligation satisfactory, they will take it forward and extend higher credit.

Bottom Line

In theory, getting a higher credit limit might sound rosy, but it is important to exercise restraint if you have less control over your spending habits. Always ensure that you have money in your account to pay back in full every month, especially if you’re making significant transactions from it. On the contrary, if you have a decent grip on your finances, increasing credit limit might open the door for greater financial opportunities in your favor.

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