Want to know how to Increase your credit card limit? Well you have landed on the right article
Don’t you get wary in a demanding situation where you don’t have enough money to get through? We all have been through such
crises at least once in our life. This is where credit cards come into the picture.
A credit card is a financial tool that helps the cardholder in making instant credit-based transactions. It has a wide spectrum of uses,
ranging from everyday shopping to emergencies.
Credit cards instill a prevailing sense of assurance in their user if and when faced with a shortage of money. It’s expected of you to pay
the utilized money within the stipulated time frame to avoid any penalty charges.
Nonetheless, all good things come with a set of limitations. In this case, we call it a credit limit. Now, the question that might pop up in your mind is, what is a credit limit?
A credit limit is the maximum amount of money that financial institutions like banks can offer to their client on a particular line of credit. This process takes place at the time of sanction of the credit card.
The holder is not permitted to spend money beyond the bar set by the card’s lender. It is subject to multiple revisions over time.
This limit differs depending on the type of credit card and the eligibility of the credit-seeking applicant. Here is a simplified guide for fending your curious mind on queries related to credit card limits.
Important Factors while Issuing Credit Card
Factors that are considered while issuing a credit card:
Client’s age
Current debt on the client
Employment status of the client
Client’s annual income
Amount of credit in client’s name
Client’s credit score
Client’s credit history
It should be noted that the last two factors predominantly determine your credit limit.
Banks generally issue a low credit limit to first-time applicants to minimize the risk of default. This move is justified as the institution is yet to witness the holder’s credit history.
However, the bank gives you an option to increase the credit limit with time if you are an active user with no history of penalty charges. A clean credit history assures the bank of your loyalty.
Hence, to upgrade your credit limit, you need to ensure a punctual and complete payment of the credit. This indicates that the key to increasing the credit health and credit limit lies in your own hands.
How to Increase the Credit Card Limit?
The credit card limit calculator as such does not define your credit limit but overall your profile helps in determining how much your credit limit will be.
The entire setup of a bank functions on user-friendly rules and protocols. Good knowledge of these practices helps you increase the credit card limit within a short period.
Consistent and smooth usage of card: Regular use of your card with the timely payment of bills is important. This helps you in getting an automatic increment in the credit card limit assigned by the bank.
Application for a New Card: Clients can apply for a new card with a higher credit limit in the bank. However, it’s a prerequisite for them to have a good credit history. Credit history is the client’s persona that speaks of their loyalty. However, keep yourself from applying for too many credit cards.
Request to Increase the Credit Limit: If a client has a valid reason to ask for an increment in credit limit, banks often consider their request and provide them with the necessary increment.
Punctual Payment of Bills: Prompt payment of the borrowed money creates a good impression in front of the bank. They typically end up offering you a higher credit limit.
Proffer your Income Certificate: In case of a salary increment or hike, an applicant can approach the bank with the latest payslip and request an optimum increment in their credit card limit. More often than not, banks agree to this request if the applicant falls under the pool of responsible cardholders.
Maintain a Good Credit Score: A credit score is an implication of the responsibility status of a client regarding the borrowed money. If you have a score above 750, lenders view you as a worthy and reliable borrower. To maintain this score, you need to monitor your credit utilization ratio and avoid canceling old credit cards.
Loans: Taking multiple loans at one time decreases your credit score. This, in turn, labels you as a credit-hungry client and reduces your chances of upgrading the credit limit. Therefore, try to take one loan at a time.
Patience: With a good credit history and an accountable credit score, a client can choose to sit back and relax instead of approaching and requesting the bank. The bank will approach you at the right time to increase the credit limit on your card. All you need is a little patience to hold on to.
Benefits of Increasing the Credit Limit on Your Card
A high credit limit encompasses a lot of benefits. These are as follows:
Increase in Credit Score: Increasing the Credit limit on your card widens the amount of money that can be borrowed. Using lesser credit than the assigned limit decreases the debts, which enhances the credit score. Such clients are considered to be financially sound and responsible by the bank. It imparts the much-needed flexibility to spend money.
Reduces the Card Utilization Ratio: With an increased limit for the same amount of expenses, a client can increase the gap between the utilized money and the assigned limit. This decreases the card utilization ratio, which helps the bank build trust in the client's credit repayment capability.
Easier to Get a Loan: Higher credit limit enhances your credit score. It creates a safe and reliable persona for the client. With a higher credit score, clients can easily get loans at a low rate of interest.
Helps During Crises: A higher credit limit can save you from borrowing money from other people during testing times. In a situation of emergency, a high credit score facilitates easy negotiation of the loan at a low rate of interest.
Consumer Perks: High-limit cardholders enjoy services like airport lounge access, hotel memberships, extended warranty, price protection, coverage for lost goods, etc.
Differences Between Total Credit Limit and Available Credit Limit
The credit card statement issued to you mentions two specific types of limits- the total credit limit and the available credit limit.
Total credit limit: It is the amount of money, in its entirety, that has been assigned to you by the lender while sanctioning your credit card. Credit that crosses the set limit is subject to penalty charges laid out by the lender.
Available credit limit: The balance amount of money that can be put to use by you at a given time is known as the available credit limit.
For example, if you are assigned a credit limit of Rs.1,25,000, then your total credit limit is Rs.1,25,000. Over a short period, you have utilized Rs.75,000 from the set limit. Hence, the remaining balance of Rs.50,000 is now treated as your available credit limit.
Why Does Your Credit Limit Matter?
The credit limit is a necessary factor when it comes to maintaining your credit score. A credit score is directly linked to your credit utilization ratio.
The credit utilization ratio is used to calculate the ratio of the amount you owe on your card to the total credit limit extended to you. It is expressed as a percentage. You are expected to keep the credit utilization ratio below 30%.
When you spend a huge amount of money, the credit utilization ratio increases. An increase in the ratio decreases your credit score, which creates a bad persona for the cardholder.
What is the Credit Utilization Ratio?
Credit Utilization implies the dynamics of transactions through your credit card. Higher traffic of revolving credits increases credit utilization. In contrast, a low credit ratio implies that you are good at managing your finances.
It amplifies the lender's trust in your repayment capability. This helps in easy availing of the premium services like loan and limit increment.
The ratio of the amount of credit spent by you to the total credit limit set on your card is known as the Credit Utilization Ratio. If you have multiple cards, the ratio is calculated by taking a sum of credits for both the upper and lower terms.
The ratio is expressed in percentage. If you’re calculating the ratio separately for your cards, it is known as the per-card ratio.
It can be calculated as :
Credit Utilization Ratio = (Total outstanding on all credit cards / Total credit limit) X 100
For example, you have two credit cards with a total limit of Rs.1 Lakh on each. You have an outstanding balance of Rs.25,000 on one card only. Then, your credit utilization ratio will be calculated as follows:
Credit Utilization Ratio = [{(25,000 + 0) ÷ 1,00,000} x 100] = 25%
Your credit utilization rate of 25% indicates that you’re using a quarter of the total credit limit extended to you.
How Does Your Credit Card Limit Affect Your Credit Score?
A credit score is a 3-digit number that measures the sense of responsibility of a borrower with the credit lent. Your credit health is the main deciding factor here. A good credit history ensures a higher credit score.
Moreover, it paints an image of the cardholder, which impacts the negotiations in the future. If you are a timely payer with a card utilization ratio between 10% to 30%, you can expect to have a credit score above the red line of 750.
This score plays an important role in the Loan Approval Process. A Higher Credit Score increases your chances of loan approval at a low rate of interest.
A credit card limit improves your credit score by lowering the credit utilization ratio. Higher credit limits will increase the denominator value in the ratio. This, in turn, reduces the ratio and widens the gap between limit and expenditure.
The credit limit and credit utilization ratio are sent to credit bureaus for review. Hence, to keep your credit score high, you need to:
Limit the use of credit card
Try earning from alternative sources
Lower the debt count
Ensure timely repayment of credits utilized
How Much of Your Credit Card Limit Can You Use?
One question that might be hanging in one corner of your mind is, “how much of this credit limit is safe for me to use?” Well, if you are someone with a low credit card limit, please try to use the methods mentioned above and increase your credit limit to an optimum level.
However, if you are an active user with an average credit limit, things might turn out a little different for you. You are free to spend as much money as you want, as long as you are within the safe credit utilization ratio range (10%to 30 %).
Hence, try to plan out your investment rather than working on your impulse. This will help you in increasing your CIBIL score.
I hope you liked our article on how to increase your credit card limit, if you have any comments or suggestions do share them in the comments below.
Frequently Asked Questions
Q1. Does the credit limit increase automatically?
If you can build a trustworthy relationship with the bank, your credit limit will be automatically increased with time. However, you need a clear credit history and a lot of patience for this.
Q2. How much should I increase my credit card limit?
You need to analyze multiple aspects while planning for an increment. Try to keep your credit limit at par with your income level. A small credit limit increase with a soft credit pull is considered to be the least risky of all, as they are easy to adapt to.
However, if you are planning a huge investment, you can ask for a higher credit limit. Your lender will approve your request depending on your creditworthiness.
Q3. How can I raise my credit limit without asking?
With the right set of practices like proper and punctual repayment of credits, taking one loan at a time, maintaining a low credit utilization ratio, etc., you can raise your credit limit without placing any request to the issuer.
Q4. Is it good if your credit limit increases?
For someone who isn’t heavy on spending impulsively, an increase in credit limit is very beneficial. With good credit health, you can expect a higher credit score, which brings a lot of exclusive services with it.
Q5. Does asking for a credit increase hurt?
Requesting a justified increase in your credit limit is your right. The relationship between you and the bank is professional. It involves loyalty and reliability. If you are a valid candidate from the bank’s perspective, it will never step away from helping you in accessing the increment.