What is a Credit Card Limit or a Credit Limit?
A Credit card limit is the maximum amount of Credit Amount approved by your bank under your name, You are allowed to have a maximum outstanding balance up to your credit card Limit only.
At some point in your life, you have probably noticed an increase in the amount of available credit on your credit card. This means that your card issuer thinks you are a great borrower and wants to make sure you remain a loyal customer. But what if you took out a new credit card and the issuing company started you off with a fairly low credit limit? What if that limit was not raised after the first year? In that situation, you should ask for an increase, Continue reading to know why and how you can do it if you have to…
How can increasing your credit limit impact your credit score?
When you increase the amount of your total available credit, it lowers your credit utilization rate. This is also known as your credit utilization ratio. This is one of the factors taken into account while determining your credit score, and having a high credit utilization rate can have a negative impact on the score. Receiving an increase in credit limit lowers your credit utilization, which ends up helping your overall credit score over the long term. Most credit experts recommend keeping your credit utilization percentage at 30% or below. One important thing that you should consider when you request the increase in your credit limit is that the issuer will be doing a hard credit inquiry, which will give you a short-term two to five-point credit score decrease. However, if the issuer automatically gives you an increase, there will be no inquiry.
What are the ways of getting extra credit?
If you need extra credit, you’ve got two options. You can work to get an increased credit limit on the current card, or you can take out a new card. While getting a new card might be attractive because of the signup bonus it offers, it might not be the best choice for you. Every time you get a new card, the average length of your credit decreases. Because this makes up 15% of your credit score, you could see a short-term decrease in your credit score. Hence, the next time you are looking to add more available credit, you are better off forgoing a new card and asking for a credit limit increase on an existing card.
How should you ask for a credit limit increase?
Now that you have made the decision to ask for a credit limit increase, you need to figure out how exactly you are going to do so, and hopefully, reduce your chances of being turned down. Here are a few points that you should keep in mind when you ask for a credit limit increase:
- The timing of your request is going to be a big factor. Consider how long the account has been open. If you recently received the credit card, then you should establish some history with the account before asking for an increase.
- It is also probably not the best time to ask for an increase if you have been bad at paying your bill on time or are currently behind on your payments. Make sure that you establish a good track record of paying your bill on time and in full before making your request.
- Be prepared for the questions. They are likely to ask you a lot of personal questions about your current employment and income. They will also ask you to provide a reason for why you need an increase in credit limit.
- Use this as an opportunity to make yourself look good before the issuer. Tell them that you have a high credit score or that you have been a long-time cardholder.
When you should you get your credit card limit reduced?
Well, Increase credit limit can help you any many different ways as explained above, But there are sometimes when you should actually ask your bank to reduce your credit card limits.
- When your cumulative Credit Card Limits of all cards is higher than 20 times of your salary per month.
- You are planning to apply for another loan like Home Loan, Car Loan etc.
- You are unable to control your impulse shopping & money habits.
Anyone looking to increase his or her available credit probably wants the ability to spend more with the card. This could be for several different reasons. You may want to put more of your everyday spending on the card to earn rewards or might you have a big upcoming purchase that you want to use the card for. Whatever your reason might be, keep in mind to not cross the 30% mark on your credit utilization rate. As long as you keep that in mind, you can consider increasing your credit limit and reap its advantages.