Credit cards come with a host of benefits including rewards and cashbacks. If used wisely, they help you in managing your expenditure and income efficiently. But what if you find that the credit card that you own is not enough to cover your expenses. You should go for a limit enhancement on your credit card if your credit utilisation ratio (CUR) exceeds 30% on a regular basis.
For instance, if your credit card limit is ₹2 lakh for a cycle and if your monthly credit card bill exceeds ₹ 60,000 regularly, you should apply for an enhancement. But you have to make sure that you have enough income to pay your credit card bills on time. Here is a guide on credit card limit enhancement, its benefits and who should opt for it.
Why do you need an increased limit?
A higher credit limit can help you manage your finances better and offers you the ability to make large purchases. Further, it will have a positive impact on CUR, an essential factor in maintaining a good credit score.
You can opt for a higher limit on your credit card if you have seen a good improvement in your financial fortunes. Lenders typically approve an enhanced limit for credit cardholders with a higher income as they will be in a position to pay off their debts easily.
If you have been using your credit card responsibly for several years, you can request an increase in the limit. You can do this by logging into your account online or by calling customer service. You should be prepared to provide information on your income, credit history and the reason for opting for a higher limit.
What are the benefits of a higher limit?
Increase in credit card limit offers several advantages. Here are some of the key benefits.
1. No need to manage multiple cards: If you get a high credit limit, there is no need to manage multiple cards. There is no requirement for remembering too many pin numbers, tracking different expenditure and credit payment cycles. If all your credit needs are fulfilled by a single card, you can plan, manage and control your expenses efficiently.
2. Improved credit scores: Any increase in credit limit enhances your ability to borrow more, which automatically reduces your CUR. Low credit utilisation is considered a characteristic of a responsible borrower and has a great value when it comes to calculating your credit scores. A low CUR will help you in getting a higher credit score.
3. Easier access to loans: If you have a long history of timely credit card payments, you will be able to get a higher credit limit. If you have a high credit limit, the chances of getting loans at lower interest rates increases significantly as lenders view it as a sign of responsible borrowing. “A combination of a high credit limit and a low credit utilisation rate is seen favourably by banks, which makes it easier to get approved for loans,” Bank of Baroda said in its explainer on the benefits of increasing credit limit in credit cards.
4. Useful in emergencies: A higher credit limit is quite handy when it comes to managing unprecedented emergencies or unplanned expenses. Unlike other loans, a credit card offers you money instantly, which is useful in navigating sudden exigencies.
5. Better rewards: A credit card with a higher credit limit brings you better rewards. The conversion of reward points into either cashbacks or other benefits is usually more in credit cards with a higher credit limit compared to those with a lower limit. You can take advantage of more significant rewards and cashback offers on your enhanced limit.
How can you increase the credit limit?
You need to contact your card issuing bank for an increase in the credit limit. Most banks allow you to do this online. You can log in to your credit card account through your bank’s online portal, browse the credit limit increase section and follow the instructions.
You can also call the customer service or visit your branch and request an increase in the credit limit. You have to provide updated financial information that includes proof of income. You have to show that you have been a responsible credit card user to improve your chances of getting a higher limit.
The bank will review your request and if you meet the eligibility criteria, your limit will be increased. Sometimes banks may not be aware of changes in your financial status that makes you eligible for a higher credit card limit.
You could have received a substantial pay hike. But you might still be using your old credit card with a lower limit. In such cases, you can ask the bank to increase the limit. “If your salary has increased, present this information to your credit card issuer with up-to-date salary slips or bank statements. A higher income often leads to a higher credit limit as it indicates improved repayment capability,” Yes Bank said in its tips for increasing credit limit.
Banks also offer you the chance to enhance the limit after reviewing your spending habits and repayment history. For this, there is no need to provide any documentation or other information.
Increasing your credit card limit is a key financial decision. While it can help you in managing your finances, you have to assess your spending habits and potential risks involved before applying for a higher limit.
Allirajan M is a journalist with over two decades of experience. He has worked with several leading media organisations in the country and has been writing on mutual funds for nearly 16 years.
