Nowadays, a lot of Credit Card users complain about their low credit card limit and are clue less to increase its limit. However, managing your credit card limit is necessary to avoid credit card debt, along with a decent credit score.
In this article, we will talk about the steps to increase credit card limit.
Concept of Credit Card Limit
The term Credit Card Limit denotes the threshold decided by the company for availing of credit.That means a credit card can spend money up to that amount only. However, the upper limit of a credit card varies from one bank to another and depends on the use and eligibility of the user.
For example, if a bank decides Rs 25000 as the limit of the credit card, then the user cannot spend money, or avail of credit benefits beyond the limit decided.
Further, the term Total Credit Limit is different from the Available Credit Limit. The former denotes the maximum limit of a credit card. In contrast, Available Credit Limit deals with the limit available with the user on a particular date.
Factors to Determine Credit Card Limit
The factors to consider for determining the credit card limit are as follows:
a) User’s Age and Income;
c) Repayment Capacity;
d) Credit History;
e) Credit Score;
Benefits of Increasing the Credit Card Limit
The benefits of increasing the credit card limit are as follows:
a) Lower Credit Utilisation Ratio: One of the main benefits of an increased credit card limit is the low credit utilisation ratio. That means the credit score of a user increases but lowers the ratio of credit utilisation.
b) Convenience in Getting a Loan: Normally, banks prefer that individual for granting loans who has a high and good credit score but low credit utilisation ratio.
c) Assists in Emergency Situations: A Credit Card with Increased Limit proves helpful in situations of emergency and crisis.
d) Additional Perks and Benefits: Usually, the credit cardholders with increased credit limits tend to have more perks and benefits than those with the low credit limit. The term “benefits” denotes discounts, exemptions, etc.
How Much of the Limit Credit Card Holder Can Use?
While using a credit card, it is essential to have knowledge of its working as well. If a holder has a low credit card limit, then he/she can always get their credit card limit increased from the respective bank.
However, it shall be relevant to note that an increased credit card limit is an indication of growth opportunities and not of spending more.
The term “Credit Card Utilisation Ratio” uses the available credit limit the holder tends to use. In case the Credit Utilisation Ratio of a borrower is on a higher side, the bank tends to consider you as a “Credit Hungry” that will,in return, affect the credit score. That means it makes it difficult for the holder to acquire a loan in the future.
However, if the credit utilisation is on the lower side, it means that the holder can manage his/her finances well and have a good repayment capacity as well.
For example, Suppose A has an SBI Credit Card with a credit limit of Rs 80,000. He spent Rs 40,000 using his card in the month of July, then his“credit utilisation ratio” will be 50%, i.e., [(40,000 / 80,000 X 100], which is much higher than the permissible limit. That means the credit utilisation ratio of 50% can badly affect his credit score.
Ways to Increase Credit Card Limit
Normally, banks keep a close eye on the credit card usage of the credit card holder and decide whether a specific cardholder should be allowed with a higher credit limit or not. If a holder is eligible, the bank will inform him/her about the same on the registered E-mail ID or mobile number. The different ways to increase Credit Card Limit are as follows:
- Use the credit card wisely: It is advisable that everyone should use their credit card regularly, but should not exceed the credit utilisation ratio. A holder must aim to keep his/her credit utilisation ratio below 30%.
- Request bank for increasing credit limit: The holder can also submit a request to his/her respective bank for credit limit increase. Normally, most of the banks approve to do so depending on the reasons provided by the holder.He/she can request for the same through net banking or by visiting the nearest bank branch.
- Apply for a new credit card: The simplest option of all is to apply for new credit with a credit limit by surrendering the current one.
- Pay credit bills on time: If a holderistimely and regularly makes his/her credit card payments, the bank will then automatically increase his/her credit limit.
The main aim of Growth Begins to write this blog is to spread awareness among the people who want to increase the credit card limit but are unaware of the benefits and ways. We have tried our best to provide you the thorough knowledge in a simplified manner. Hope you all like this post.