How To Increase Credit Card Limit

Credit cards make life so much easier until you have used up the limit. The good news is - you have an option to increase the credit card limit. You can either do it before or after you apply for a credit card.

What is a credit card limit?
 

The "credit card limit" denotes the maximum amount of money you can borrow using your credit card without incurring penalties. You can consider it a financial boundary set by your bank based on your creditworthiness and financial history. However, this limit is not a fixed sum; it can be increased or decreased by the card issuer periodically. Staying within this limit is crucial to maintaining a healthy credit score and avoiding over-limit fees.

Why is a credit card limit important?
 

Since your credit limit is based on your financial history and repayment records, it has a significant impact on your future borrowing capacities. Here are a few reasons why it is so crucial.

• It impacts your credit score, with lower credit utilization (the percentage of credit used) leading to a higher score.
• It safeguards against reckless spending and potential debt accumulation.
• Responsible credit limit management shows your fiscal understanding to lenders, facilitating future credit approvals and better terms. Thus, the credit limit is an essential tool for financial stability and growth.

What is the credit utilisation ratio and how to calculate it?
 

The credit utilisation ratio is a factor in your credit profile that represents the percentage of your available credit that you have used. It is a vital element in determining your credit score and overall creditworthiness. A lower credit utilisation ratio is generally better for your credit score and financial health because it indicates responsible credit management.

To calculate your credit utilisation ratio:
 

1. Determine your total credit card balances: Add up the outstanding balances on all your credit cards.

2. Calculate your total credit limit: Add together the credit limits of all your credit cards.

3. Divide the total balances by the total credit limit: Divide your total credit card balances by your total credit limit and multiply the result by 100 to get the percentage.

For example, if you have a total credit card balance of INR 20,000 (the amount spent) and a total credit limit of INR 100,000, your credit utilisation ratio would be:

(20,000 / 100,000) * 100 = 20%

In this case, your credit utilisation ratio is 20%, which is considered low and beneficial for your credit score. It's generally recommended to keep your credit utilisation ratio below 30% to maintain a healthy credit profile.

What are the benefits of a higher credit limit?
 

A higher credit limit on your credit card can offer several advantages if managed responsibly such as:

1. Improved credit score: A higher credit limit can potentially lower your credit utilization ratio, the amount of credit you use compared to your total limit. A lower utilisation ratio often translates to a better credit score, as it shows responsible credit usage.

2. Financial flexibility: A larger credit limit provides increased financial flexibility. It can help cover unexpected expenses, emergencies, or larger purchases without maxing out your card or resorting to high-interest loans.

3. Enhanced purchasing power: With a higher limit, you can make more significant transactions, such as booking travel tickets, purchasing expensive items, or consolidating debt at a lower interest rate through balance transfers.

4. Creditworthiness: A higher credit limit can positively influence your creditworthiness, making you appear more attractive to lenders. This may lead to better loan terms, including lower interest rates.

5. Rewards and benefits: Some credit cards offer rewards, cashback, or points for spending. A higher limit allows you to earn more rewards while still maintaining a healthy credit utilisation ratio.

Difference between total credit limit and available credit limit
 

Total credit limit is the maximum amount of credit extended to you by your credit card issuer. It represents the total sum you are allowed to borrow on your credit card across all transactions. On the other hand, the available credit limit is the portion of your total credit limit that remains unused and available for new purchases or transactions. It's the difference between your total credit limit and the outstanding balance on your card. As you make purchases and accrue balances, your available credit limit decreases. When you make payments to reduce your card balance, your available credit limit increases.

Imagine you have a credit card with a total credit limit of INR 50,000. Initially, your available credit limit is also INR 50,000 since you haven't made any purchases. After using the card for shopping worth INR 20,000, your available credit limit decreases to INR 30,000. This remaining amount represents what you can spend on the card without surpassing your total credit limit, which remains at INR 50,000. Once you pay your dues in full, your available credit limit again becomes equal to the total credit limit.

What to do before requesting a higher credit limit?
 

Before requesting a higher credit limit on your credit card, it's necessary to undertake a few steps to increase your chances of approval and to ensure responsible credit management:

1. Understand your card issuer's policies regarding credit limit increases. Some issuers offer automatic increases, while others require a formal request.

2. Assess your current financial situation, including income, expenses, and outstanding debts. Ensure that you can manage a higher limit responsibly without falling into debt.

3. Obtain a copy of your credit report to verify its accuracy. Correct any errors or discrepancies that might negatively affect your creditworthiness.

4. Ensure that you have consistently made on-time payments on your existing credit card accounts. Late payments can harm your creditworthiness.

5. Demonstrate a history of responsible credit use by paying bills promptly and managing your existing credit accounts responsibly.

When you are ready, request a credit limit increase through your card issuer's designated channel. Be prepared to provide income and financial information if requested.

What is over-limit facility?
 

An over-limit facility is a feature that allows you to exceed your assigned credit limit temporarily. When you activate the over-limit facility, you can continue using your credit card beyond the designated limit, up to a predetermined over-limit amount set by the card issuer. This feature can be helpful in situations where you need to make essential purchases but have exhausted your regular credit limit.

However, it's important to note that the over-limit facility must not be used indefinitely. You may sometimes be required to pay off the excess amount within a specified period, typically in the next billing cycle. Interest and fees may also apply to the over-limit balance depending on the bank.

Here are seven smart ways to raise the limit on your credit cards:
 

Make a direct request
 

Your bank can increase the credit limit of your existing card if you make a request. This will depend on various factors such as your credit history and income. If you own multiple cards, select the card for which you would want to increase your limit.

Boost your credit score
 

Your credit card limit greatly depends on your creditworthiness, which is dependent on your credit score. If you have never defaulted on paying your monthly instalments, it can help maintain a higher credit score. You can improve your score by using and managing your credit cards well. Pay your monthly bills on time to show the credit card bureau that you use your card often and you need a higher limit

If you want to know how to increase your credit score, get in touch with us.

Update your information
 

Sometimes banks may not be aware of any change in your financial status which could make you eligible for a higher credit card limit. You would have received a substantial pay hike in the past few months, but you might be still using your old credit card with a pre-set limit. In such cases, you can inform your bank and ask them to increase your limit on your new card or issue a new card with a higher limit.

You should also consolidate your accounts to give the bank a better financial picture. Instead of having several bank accounts with small sums in each, put all your money in one account. This will offer a better picture of your finances.

Repay dues on time
 

It is important that you first pay off the dues on your credit cards. Clear any pending dues from the previous month that is carried forward. Next, pay off the future bills in full before the due date. Making the repayments on time will help you showcase your capability to manage your credit cards.

Set a limit
 

Asking for too much of an increase can be seen as a red flag, and your request can be denied. You would then have to wait for a few more months to apply. Set a reasonable expectation and ask for the same during your application.

Justify your request well
 

Avoid calling the credit issuer with stories of an emergency, expecting them to empathise with your situation and increase your credit card limit. Instead of telling them why you need it, tell them why you deserve it. Here are some good reasons why:

• You’ve been a loyal customer for a certain period and have never missed a payment
• You’ve been a customer for at least 6 months before asking for an increase
• Your income has recently increased
• You pay your balance in full every month
• Your payments are always on time
• You’re using 30% or less of your current limit

Speak kindly to the person on the other end of the phone. Being rude will be unlikely to help your case and could reduce the chances of getting a credit limit increase.

Avoid asking for recommendations
 

Don’t ask the representative how much you should request. Credit card companies may prohibit their employees from offering this advice to you. The percentage of increase will be different for every customer. The better your profile, the more you can expect.

Now that you know how to increase the limit on credit cards, be responsible and stay within the credit limit to be free of debt and penalties.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.