Requesting an increase in your credit limit can help or hurt you, depending entirely on your financial habits. Let’s find out more.
If you got a Credit Card when you were just starting out in your career, chances are that the credit limit on your card may not seem enough anymore. As your needs have grown over the years, so have your expenses, so feeling the need to increase your credit limit is only valid. But what impact does an increase in your credit limit have on your financial standing? And is it a good idea to increase your credit limit? We’ll tell you all about it here.
Whether increasing your credit limit will help or hurt your finances depends entirely on your financial habits. If you have a habit of paying your Credit Card dues on time and in full every month, then increasing the limit will offer you more flexibility and in fact, even lower your credit utilisation ratio. But if you are prone to reckless spending, then an increased credit limit might compound your problems.
Here are some easy ways to increase your credit limit and to determine if a credit limit increase is good for you.
Ways To Get A Higher Credit Limit:
- Request Online: One place to start when you want to apply for a credit limit increase is to place a request online by logging in to your account. Your Credit Card issuer may ask you for your income details since a higher income indicates greater financial security. Issuers will take this into consideration while evaluating your request.
- Call Your Credit Card Issuer: If you’re unable to place a request online, call the number on the back of your card and check with a customer service representative if you’re eligible for a higher credit limit. The customer support executive may ask for your income details and why you want a credit limit increase. So, have your answers ready.
- Look Out For Automatic Increases: If you’ve been using the card for some time, and responsibly at that, your Credit Card issuer may give you an automatic increase in your credit limit. Look out for SMSes or emails from your card issuer where you may be given the option to request for a credit limit increase.
- Apply For A New Card: If you have a squeaky clean history of making on-time payments on your existing lines of credit, you may gain approval for a new card which has a higher credit limit than any of your existing cards.
Additional Reading: Tips and Tricks For Handling Multiple Credit Cards
How A Higher Credit Limit Can Help You?
If you’ve been a responsible cardholder and have a clean record of on-time payments, a higher credit limit can boost your credit by keeping your credit utilisation low. So, what is credit utilisation? It’s the amount of available credit in use. Your credit utilisation ratio influences your Credit Score in a significant way.
Ideally, you should keep your credit utilisation ratio below 30% or less of your limit on each card and overall as well. If you’re into the habit of utilising more than 30% of your credit limit, even if you pay off your balances, your Credit Score could tank.
Over time, if you notice a growth in terms of your expenses, and if there’s been a steady increase in your income as well, increasing your credit limit can give you more flexibility. For instance, if your credit limit is 30,000, and your monthly Credit Card expenses are Rs. 10,000, then your credit utilisation is 33%. This is above the recommended 30% threshold. But if your credit limit is increased to Rs. 60,000, and your utilisation remains the same at Rs. 10,000, then your credit utilisation ratio will drop to 16%. This will help your credit rating.
Additional Reading: How Different Types Of Credit Can Boost Your Credit Score
Points To Consider Before Requesting For A Higher Credit Limit:
Before placing a request for a higher credit limit, evaluate why you want it in the first place. If you’re doing it for flexibility and lower credit utilisation, then you may opt for it. But if you’re doing it thinking that it will lift you out of your dire financial situation, then it will probably worsen the problem. Keep the following things in mind before you opt for a credit limit increase:
- Timing is everything:
If you’re planning to place a request for a credit limit increase, time your move well. If you’ve been a responsible cardholder, just got a pay raise and have a good Credit Score, it’s alright to apply for it. But if there’s been a slash in your income, your Credit Score is in the doldrums, and you’ve applied for other lines of credit, you may want to wait it out before you request for some wiggle room on your credit line.
- It might impact your Credit Score: A request to raise your credit limit can result in a hard inquiry on your credit report. This can tank your Credit Score, especially if you’ve applied for other lines of credit in the past months.
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