Credit cards have become a necessity these days for most people. However, one of the drawbacks that frequent credit card users often have to deal with is the credit card limit. This means you cannot spend continuously or in an unlimited manner using your credit card. The credit card limit does not allow you to spend beyond a certain amount.
Many card users complain that their credit limit is too low for their needs and have no idea how to get it increased. In this article, we will discuss the credit card limit increase and provide some smart tips to increase the same.
Credit Limit Increase – What it Means?
Credit limit simply means the usage limit which is set by your credit card company on your credit card. It refers to the maximum amount which you can spend through the credit card. For instance: if your credit card company has set a credit limit of Rs. 50,000 on your credit card, you cannot make purchases or conduct transactions beyond this amount from your credit card. The credit limit can vary depending on the type of credit card you are using and other factors such as income, credit score, other debts, etc.
Tips to Get Higher Credit Limit
Here are some expert tips on getting a higher credit limit for yourself:
- Regularly Use Your Card: If you make use of your credit card regularly and make bill payments on time, chances are higher that the credit card provider will automatically increase your credit limit.
- Furnish Latest Income Statement: If you had submitted an income statement at the time of credit card application, the bank will continue to use the same and assume that your income has not changed. Thus, make sure to furnish the latest income statement or payslips to your bank and request for an increase in the credit limit on your card.
- Request the Credit Provider: If you drop in a request to the credit card provider to increase the credit card limit, the bank or lending institution may agree to it depending on the reason provided for such request. This can be done through net banking or by visiting the bank personally.
- Consider a New Card: A new credit card will often come with a higher credit limit as compared to your current credit card. If you have been making timely payments on your current credit card, you will find it easy to apply and get approval for a new card.
- Make Timely Bill Payments: If you have been regular and timely with your credit card bill payments, your credit score is likely to increase and the bank will consider you to be a responsible cardholder. This may result in the bank increasing your credit limit over time.
Patience Pays: If you have been using a credit card for a long time, the bank may automatically increase your credit limit. The flipside in this case, however, is that you will have to wait till the bank does so.
Additional Reading: How to increase the credit limit on my card?
Why is Credit Limit Important?
If you know what credit limit means and are aware of the credit limit on your card, you can easily manage your day-to-day credit card transactions. While doing so, however, always remember that credit score is tied to your credit limit, even if indirectly.
This is easily proved with a ratio which is widely used for calculating the credit card amount you owe now compared to the total credit provided to you and is stated as a percentage.
Credit Utilisation Ratio
Here is the formula for your reference:
- Credit utilisation ratio = (Balance due on all credit cards/Total credit granted on all credit cards) x 100
It is advisable to maintain your credit utilisation ratio within 30%.
What if the Credit Utilisation Ratio is High?
Your credit utilisation ratio shows how much of the available credit is used by you. If your utilisation ratio is often high (i.e., the amount you use is almost the same as your total credit limit), lenders will consider you to be credit hungry. They may also believe that you are unable to manage your finances well and hence there is a high possibility of default on a payment. This may lead to a drop in your credit score and it can be challenging for you to get a loan in the future.
Benefits of Low Credit Utilisation Ratio
A low credit utilisation ratio means that you can easily manage your finances and there is a high probability that you will pay your bills in time and fully. From a lender’s perspective, you are considered to be a reliable borrower/creditor. In simple terms, a low credit utilisation ratio will help increase your credit score. This can make it easy to apply for a loan and your loan application has higher chances of getting approved.
What are the Benefits of Higher Credit Limit?
Now that you know about credit limits and how to have a higher credit limit, it is imperative to know what you will gain out of it. Mentioned below are some of the key benefits that you can avail with a higher credit limit:
- Minimal Credit Utilisation Ratio: One of the biggest benefits you will surely get from a higher credit limit is a low credit utilisation ratio. This is sure to have a positive impact on your credit score.
- Easy Loans: A high credit limit which you may not use fully will make banks and lenders favour you while making loan applications. Thus, getting a loan approval will be far easier with a higher credit limit.
- Emergency Needs: A higher credit limit can prove to be a boon during a financial crisis or a medical emergency.
- Benefits of Perks: Most credit cards which have higher credit limits come with many perks like airport lounge access, hotel memberships, etc.
Additional Reading: How do credit card companies determine credit limit
It’s always a smart idea to opt for a higher credit limit as it can come in handy for multiple uses and in many situations, especially during financial emergencies. Be aware that banks perform due diligence before accepting your request of increasing the credit limit, Therefore, ensure to maintain a clean track record with your credit score and utilisation.
- How can I get my credit limit increased?
You can reach out to your bank or credit card issuer for the same. Based on their criteria and your credit history, they may either accept your request or reject. Some credit card providers may offer a credit limit increase based on your good credit track record.
- How many times can I get my credit limit increased?
You can get your credit limit increased every quarter or year, depending on your credit issuer’s terms. However, to improve your chances of easy approval, try to wait at least 6 months from the time you opened your account or previous credit limit request.
- Will my credit limit automatically increase?
If you have been handling your credit responsibly, your credit card issuer may automatically increase your credit limit. Many issuers frequently review your accounts and automatically increase the credit limit based on the pre-defined criteria.
- How long does it take to get an increase in credit limit?
Some lenders may approve a credit limit increase within a few hours while others may take a few days to assess your eligibility before granting an increase.
- Why is my present credit limit low?
The common reasons why your credit limit may be presently low are, your credit score could be less or you may be new to using credit cards and don’t yet have a long credit history. Apart from this, a low credit limit is also dependent on the specific lender and their criteria.