You are out, and a sudden requirement for cash arises. You check your wallet but realise you don’t have enough. Your Credit Card, usually used for cashless transactions, can save you! Yes, you can withdraw cash by swiping your Credit Card in emergencies. However, this service comes with specific terms and charges, so understanding how it works is vital. Let's discuss how to increase a credit limit.
What is Credit Card limit?
A Credit Card limit, often referred to as a credit limit, is the maximum amount that a Credit Card company allows you to borrow on a single card. This limit is set based on several factors, including your credit history, income, and the card issuer's policies. It is a crucial component in managing your finances, as it determines how much money you can spend using the card.
How is Credit Card limit arrived at?
Credit Card issuers consider multiple factors when determining your credit limit. Key aspects include your credit score, repayment history, current income and existing debt. A higher credit score and a stable income typically lead to a higher credit limit, whereas a lower score and uncertain income might result in a lower credit limit on your card.
Also Read: Credit Cards: Six reasons why you should have a credit card
Impact of Credit Card limit on credit score
Your Credit Card limit plays a significant role on your credit score. A critical factor is the credit utilisation ratio, which is the amount of credit you are using compared to your total credit limit. Maintaining a low credit utilisation ratio (ideally below 30%) can positively impact your credit score. Conversely, maxing out your credit limit can harm your score. In other words, if you have a higher Credit Card limit as compared to your regular usage, then your credit utilisation ratio continues to be low, which in turn has a positive impact on your credit score.
Ways to increase the credit limit
Improve credit score
Pay bills before the due date, manage your credit usage wisely, and avoid multiple credit inquiries to boost your score and qualify for a credit limit increase.
Show consistent income growth
Update your Credit Card issuer with proof of increased income, such as salary slips or tax returns. A higher income indicates that you can effectively manage a higher credit limit.
Use your card regularly
Use your Credit Card frequently for purchases and ensure complete, on-time repayments. This establishes trust with the issuer, making them more likely to grant a limit increase.
Avoid maxing out
Maintain a low credit utilisation ratio, ideally under 30%. A low ratio signals that you don’t rely heavily on credit, which issuers favour when considering limit increases.
Consider a new card
If raising your existing card’s limit isn’t an option, explore getting a new Credit Card with a higher limit that matches your financial habits.
Joint card
Open a joint Credit Card account with a trusted family member or spouse with a strong credit history, which may lead to a higher credit limit.
How to request a credit limit increase on your Credit Card?
Request online
Most banks offer the option to request a credit limit increase directly from their website or mobile app. Log in to your account, navigate to the Credit Card section, and look for the "credit limit increase" option. You may need to provide basic financial information, such as your current income or monthly expenses.
Call customer service
You can also call the customer service number on the back of your Credit Card. Speak to a representative who will take you through the process. They may ask questions about your current income, employment status, and how long you have used the card. Be prepared with this information to help your case.
Submit a written request
Sometimes, especially with smaller banks or financial institutions, you may need to submit a formal written request. Write an application stating why you are requesting a credit limit increase, including details like your income, current credit score, and length of time you have held the card.
Benefits of Credit Card limit increase
- A higher credit limit reduces your credit utilisation ratio if your spending remains unchanged. This can improve your credit score, making you more creditworthy for future loans.
- A higher credit limit allows you to manage large expenses without exhausting your card’s capacity. This is especially helpful during emergencies or high-value purchases like electronics or travel.
- Travelling internationally often involves higher expenses. A credit limit increase allows you to cover costs like hotels and transportation without stressing about running out of credit.
- A higher limit reduces the need to manage multiple cards for large expenses. Transactions can be managed on a single card, simplifying payment tracking and management.
- With a higher limit, you can spend more on your card, which helps you accumulate rewards points or cashback faster. These can be redeemed for shopping, travel, or bill payments.
Also Read: 6 benefits of using a Credit Card
Difference between total credit limit and available credit limit
The total credit limit represents the maximum amount that you can spend using your Credit Card. This limit is set based on your income, credit score, and credit history. For instance, a higher credit score and high income might result in a higher credit limit. It is important to note that this limit is a guideline for the upper boundary of your borrowing capacity.
On the other hand, the available credit limit is what you can use at any given moment. It is the difference between your total credit limit and the amount you have already spent (and not yet repaid) on your Credit Card. For example, if you have a total credit limit of ₹1 lakh and you have spent ₹20,000 already, your available credit limit would be ₹80,000. This figure fluctuates as you make new purchases and repayments.
The gap between these two limits is a key financial indicator. A high utilisation of your credit limit (a smaller gap) can negatively affect your credit score, as it may suggest over-reliance on credit. In contrast, a lower utilisation ratio (a larger gap) is generally viewed as favourable, as it indicates responsible credit usage. Managing this balance effectively is essential for maintaining a healthy credit profile.
Conclusion
Understanding the nuances of total credit limit versus available credit limit not only helps in maintaining a healthy credit score but also ensures that you make the most out of your card.
Axis Bank Credit Cards stand out in offering a plethora of benefits. Using a Credit Card is not just about spending; it is about spending wisely and reaping the rewards that come with it. Remember the importance of understanding your credit limits and consider the added advantages that come with cards, especially if dining and lifestyle perks align with your interests.
FAQs
Is increasing credit card limit good?
Yes. One benefit is that you get a higher limit to spend. Second benefit is that it can help you keep your credit utilisation at a lower level, which in turn has a positive impact on your credit score
What happens if I exceed my credit limit?
Your bank may allow you to spend a certain limit over and above your credit limit, subject to charges. These charges will be mentioned in your Credit Card’s terms and conditions. Read them carefully before using your Credit Card.
Why was my credit limit increase request denied?
If you have not submitted any proof of income increase of if you have delayed or missed your Credit Card repayments, then there are chances that your request for a credit limit increase may be denied.
How much will my credit limit be?
Your credit limit will depend on your income and credit score and is fixed when you apply for your Credit Card. It may increase later with regular Credit Card usage.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author 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. Please consult your financial advisor before making any financial decision.
