Are you looking to increase the limit on your credit card? Before you proceed, ask yourself this question: Why am I looking to extend my credit limit?
If it's to purchase a luxury item or to engage in some retail therapy – things that you cannot afford out of pocket – encourage you to carefully evaluate your decision. Increasing the limit on your card to engage in expensive purchases could land you in a debt trap.
Besides, you have to prove to your bank that you can handle credit responsibly before you can get approved for an increased credit limit. If you have a history of delayed or missed payments, your chances of approval for an increase in the limit are slim.
Before, we look at the strategies to increase your credit limit, let’s focus on:
What is credit limit and why does it matter?
The credit limit is the maximum amount of money that you can borrow using your credit card. It can range from a few thousands of rupees to several lakhs, depending on the type of card and your profile.
Here’s an illustration: Let’s say, your bank issues you a credit card with a limit of Rs. 30,000. This means the maximum amount you can swipe on your card in a month is Rs. 30,000. After that, your card gets blocked, and you have to clear off the outstanding dues before you can use it again.
Having a higher credit limit on your card is advantageous as it gives you a bigger purchasing power. Also, it can come in quite handy during emergencies.
8 Strategies to Increase your Credit Limit
Now that you have a clear understanding of how credit limit works let's check out the top ways to increase your credit limit.
Automatic Annual Increase of the Credit Limit
Most banks offer an automatic annual increase in the credit limit for customers who utilise the card responsibly. If you make payments on time and in full, you're likely to be considered for this offer. You can ask your bank relationship officer if you're eligible for this increase.
Even if you don't require an increased credit limit, make sure to accept it if your bank offers one. Note that there are no additional charges for an increased credit limit, and the annual fees and other charges you pay on your card remain the same.
Apply for a New Credit Card
The easiest and simplest way to increase your overall credit limit is to apply for a new card with a higher limit. Each credit card has a specific credit limit. So, when you apply for a new card on top of your existing card(s), your overall credit limit increases.
You can choose to apply for a new card at your current bank or go for a new card issuer. Look for cards that offer you a higher credit limit than your existing card to increase your overall credit limit.
If you have been paying your credit card bills on time and managing your credit responsibly without maxing out your cards, then chances are that you will be eligible for a new card with a higher credit limit.
Request your Bank to Increase the Limit on your Current Card
Yes, you can increase the credit limit on your current card. Approach your banking officer and state your request. Remember that accepting or rejecting your application is at the sole discretion of the bank.
Your bank considers several factors like – credit history, credit score, card usage, bill payment records, income, other investments, etc. to determine whether to increase your card limit.
Demonstrate to the Bank that you’re responsible with credit
To convince your card issuer to increase your credit limit, you must establish yourself as a responsible borrower. Make sure that you repay any pending card bills. Going forward, pay all future card bills well before the due date. Next, don't just pay the minimum balance due, but clear all bills in full.
This showcases that you’re a responsible borrower and do not keep any arrears on your bill payments.
Show proof of an Increase in Income
Generally, banks offer higher credit card limits for customers with a higher income. If you have recently received a promotion at work or a bonus, make sure to communicate the change in financial status to your bank. Your bank may require you to submit proof of an increase in income – like your payslip.
Make an Investment with the Bank
Banks offer an increase in credit card limit when you make an investment with the bank, like opening a Fixed Deposit account or investing in other financial products offered by the bank. It also helps if you can consolidate all your banking accounts. Instead of having several bank accounts with small sums, pool all your money in a single account to give the bank a better picture of your financial standing.
Work on Boosting your Credit Score
Your credit score plays a crucial role in determining the credit limit you’re eligible for. A higher score means that you are a responsible borrower, reducing the risk borne by the bank. The higher your credit score, the higher is the credit limit, the bank is willing to offer you.
Work on improving your credit score. Here are a few ways to do it:
Pay your EMIs and other dues on time.
Do not max out your credit cards. Keep the spending limit manageable.
Try to keep the monthly spending well below the maximum credit limit.
Avoid taking on new loans.
Reduce your credit utilisation ratio by closing ongoing loans.
Lower your Credit Utilisation Ratio
The credit utilisation ratio plays a crucial role in determining whether your bank sanctions your request for an increase in credit limit. This is a measure that indicates the credit limit you are using against the total credit limit available to you.
Financial experts recommend that you keep this ratio below 30% to keep your credit records healthy. When you have a low credit utilisation ratio, it works in your favour in two ways:
It indicates to the bank that you are not credit hungry, and your expenses are manageable.
It boosts your credit score, which, in turn, helps you increase your overall credit limit.
It's always advantageous to have a higher credit limit than you require. For instance, you can use the card to meet a financial emergency, instead of resorting to borrowing at steep interest rates. Make use of the various methods listed here to avail of an increase in your overall credit limit.