How to Increase Your Credit Limit and Enjoy the Perks

Have you ever wanted to make a big purchase with your credit card but your credit card limit held you back? If yes, then you are not the only one. Credit cards can make your life easier by letting you pay conveniently, help build your credit score, and earn rewards. You can reap these benefits as long as you manage your spending within your credit card limit. The good news is that you can learn how to increase your credit card limit by following a few simple steps.

What is a Credit Card Limit?

Before we dive into how you can increase your credit limit, let’s first understand what it really means. Credit cards give you the ability to borrow money up to a set limit. Your bank determines your credit limit based on eligibility factors like credit score, income, etc. This borrowing power lets you handle purchases and emergencies with ease. The credit card limit is the maximum payment you can make in the given monthly cycle. Several factors dictate your credit limit, like your income, age, credit score, etc. Let’s take a look at how to go about increasing your credit limit.

How to Increase Credit Card Limit

Understanding how to boost your credit limit is important to increasing your purchasing capabilities. It improves your financial prospects by allowing you access to credit products such as loans and credit cards and also availing you of a lower interest rate on loans. Here are some ways you can improve your credit limit:

1. Build a Good Credit Score

Improving your credit score is the best way to increase your credit card limit. Think of it as your financial reputation. The better your reputation, the more trust credit card companies will have in your ability to manage credit responsibly. To become eligible for a higher credit limit, you must have a good repayment history, which leads to a higher credit score. OneScore’s Smart ScorePlanner is a free tool that gives personalized insights for credit score improvement.

2. Repay Dues on Time

When you submit a request for a credit card limit increase, the credit card company will first review the amount of debt you already have. Therefore, being punctual with your credit card repayments and showcasing that you are ready to manage more credit will increase your chances of getting a credit limit enhancement.

3. Maintain a Low Credit Utilisation Ratio

Also known as your debt-to-credit ratio, it is the ratio of your overall outstanding balance across credit cards to your overall credit card limit. Experts suggest keeping this ratio as low as possible. A low credit utilisation ratio is one of the ways to help you boost your credit score and get a higher credit limit.

4. Show Proof of an Increase in Income

Credit card companies take into account factors like your income potential and your ability to settle debts on time. Therefore, if you’ve recently received a salary hike or have another source of income, provide documented proof to the credit company to request a credit limit increase.

5. Annual Increase

Most credit card companies offer a yearly increase in credit limit if you have paid your previous balances on time. This builds your credibility in the eyes of your issuer, and an annual increase in your credit limit is offered as per the credit card company’s policies.

Benefits of Increasing Your Credit Limit

Let’s take a closer look at the benefits of increasing your credit limit and learn how they can positively impact your financial situation.

1. Financial Flexibility

Having a higher credit limit provides you with financial flexibility at all times. It gives you funds for an interest-free period of 30 days. During a crisis, having a higher credit score can be a lifesaver. Whether you need to cover an unexpected medical bill or an urgent car repair, having a higher credit limit allows you to access funds when you need them most.

2. Lower Credit Utilisation Ratio

Increasing your credit limit directly lowers your credit utilisation ratio. Simply put, if your initial credit limit is ₹20,000 and you spend ₹10,000, you are using 50% of your credit limit. But if your credit limit increases to ₹40,000 and you are still spending ₹10,000, the ratio decreases. A lower ratio shows your credit card issuers that you are not credit-hungry and positively impacts your credit score.

3. Easier to Get Loans

A higher credit limit often signifies that the person has a good repayment history and is capable of handling credit. When it comes to loan applications, banks are more likely to look at your loan application favourably if you have a good credit score.

4. Better Perks

Most credit cards come with reward programs that offer cashback or instant discounts for using the card. This could help you save some money, especially when shopping for electronics or home appliances. If you are someone who dines out often or shops online, certain credit cards offer great discounts in partnership with the platform.

If you want to increase your credit limit, it is crucial that you keep an eye on it and follow the best practices. Emergencies can arise unexpectedly. By focusing on improving your credit score and implementing the tips mentioned earlier, you can potentially raise your credit limit and gain better control over your finances. However, it’s always wise to consider your objectives and spending habits before deciding whether to request a credit limit.