In this comprehensive guide, we will explore practical (and lesser known) strategies to increase credit card limit, try to explain how a credit card limit enhancement can help you, and discuss the cons of a credit card limit increase as well.
Table of Contents
- What is a credit card limit increase?
- Types of credit limit enhancement
- The pros & cons of a higher credit card limit
- How to increase credit card limit?
- Frequently Asked Questions
Having a higher credit card limit can offer several benefits when it comes to managing your finances and achieving your financial goals. A higher credit limit allows you to have more purchasing power, greater financial flexibility, and improved credit utilization. It can also provide a safety net during emergencies, and it can help you earn more rewards and benefits from your credit card.
What is a credit card limit increase?
A credit limit enhancement (CLE), or credit limit increase (CLI), on a credit card is the process of raising the maximum amount of credit available on a credit card. It means the bank (or card issuer) is raising the maximum amount of money you can spend using that card. Basically, they’re giving you a higher credit limit.
Credit limit enhancements are offered by banks based on factors like your creditworthiness, income, and how you’ve managed your credit before. If you’ve been responsible with your payments and have a good credit score, the bank may automatically increase your credit limit. Or you can even request it yourself.
With a credit limit enhancement, you get more purchasing power. You can make bigger purchases, handle unexpected expenses, and enjoy more financial flexibility. Plus, it can have a positive impact on your credit score too. It shows that banks trust you to handle more credit responsibly.
Types of credit limit enhancement
There are two types of credit card limit enhancement:
Automatic credit limit enhancement (Auto CLE or Auto CLI)
Banks review credit card accounts periodically, often around every six months, to assess the cardholder’s creditworthiness and spending patterns. During this review process, if your credit card account meets the bank’s criteria, you may receive an automatic limit enhancement offer. The bank will notify you of this offer through various channels such as phone calls, SMS, emails, or app notifications.
The decision to offer a limit enhancement is based on factors like your creditworthiness, income stability, repayment history, and overall financial profile. Banks want to ensure that you have demonstrated responsible credit behavior and are capable of managing higher credit limits. Typically, you don’t need to submit any documents (like ITR or salary slips) for automatic CLEs; you just have to provide your consent for the increased limit.
It’s important to note that the specific frequency and criteria for automatic limit enhancements may vary between banks. Additionally, eligibility for a limit enhancement is not guaranteed and depends on individual circumstances.
To receive an automatic limit enhancement offer from your bank, you don’t need to take any specific actions. Simply ensure you use your credit card regularly and make timely payments on your credit card bills. By demonstrating responsible credit usage and consistent repayment history, you increase the chances of getting considered for an automatic credit card limit enhancement.
Manual credit limit enhancement (Manual CLE or Manual CLI)
This is the second type of credit limit enhancement, and you should consider this if you haven’t received an automatic limit increment from your card issuer. In this method, instead of your bank offering you an increased limit on your credit card, you go to the bank and request them to increase credit card limit.
To request a manual credit limit increase on your credit card, you will need to contact your bank or card issuer directly and express your desire for a higher credit limit. Unlike automatic limit enhancements, which are determined by the bank based on your credit card usage and payment history, manual increases involve a more proactive approach.
When contacting your bank, they will guide you through the specific process and requirements for requesting a credit limit increase. In most cases, the bank will ask for additional documentation to evaluate your eligibility for the enhancement. These documents may include updated income proof, employment details, bank statements, or any other relevant financial information.
The bank’s decision to grant a manual credit limit increase depends on various factors, such as your repayment history, creditworthiness, income stability, and overall financial profile. Providing accurate and up-to-date documentation will help the bank assess your ability to handle a higher credit limit responsibly. The specific requirements and documentation needed for a manual credit limit increase may vary among different banks and card issuers.
The pros & cons of a higher credit card limit
Like most things, an increased credit card limit also comes with its fair share of benefits and downsides, which you must be aware of before you increase credit card limit. Following are some of the major pros and cons of a higher limit on your credit card.
Pros of higher credit card limit
- More spending power: With a higher credit limit, you have the flexibility to make bigger purchases or handle unexpected expenses without maxing out your credit card. Bigger spending also means more rewards and card-specific benefits.
- Financial flexibility: A credit limit increase provides you with a safety net for emergencies or unforeseen circumstances. It can give you peace of mind knowing that you have extra funds available if needed.
- Improved credit utilization ratio: When your credit limit increases, it can lower your credit utilization ratio, which is the percentage of the available credit you’re using. A lower ratio is generally seen as positive by credit bureaus and can potentially boost your credit score.
- Eligibility for better credit: A higher credit limit on your existing credit card may deem you eligible for better (higher) variants of credit from banks and lenders. For example, the bank may offer you a better, more premium credit card as an upgrade if you have a handsome credit limit on your existing one.
Cons of higher credit card limit
- The temptation to overspend: With a higher credit limit, there is a risk of falling into the trap of overspending. It’s important to remember that a credit limit increase doesn’t mean you have more money; it simply means you have access to more credit.
- Debt accumulation: If you’re not careful with your spending, a higher credit limit can lead to increased debt if you consistently carry a balance on your card and struggle to make timely repayments. It’s essential to manage your finances wisely to avoid falling into a debt spiral.
- Impact on credit score: While a credit limit increase can have a positive impact on your credit utilization ratio, it can also potentially impact your credit score if it leads to excessive borrowing or if you’re unable to manage the increased credit responsibly. Late payments or high credit utilization can harm your creditworthiness.
In conclusion, a credit limit increase on your credit card can be beneficial if used responsibly. It offers greater financial flexibility and potential credit score improvements. However, it’s important to resist the urge to overspend and ensure you have a solid repayment plan in place to avoid falling into debt. Always use credit wisely and stay mindful of your financial goals.
How to increase credit card limit?
On to the meaty stuff. In this section, we’ll share some tips and tricks to help you increase credit card limit, or improve your chances of getting your credit card limit increased.
Please note, the exact process of getting your card limit increase may vary from bank to bank, but that isn’t what we are discussing here. These are just general/common tips you can use to get credit card limit enhancements, irrespective of your bank or credit card issuer. If you want to find out the exact limit enhancement process for your particular bank or issuer, though, we have several guides on our website for that. Please use the search page.
Alright, so below are some practical things you can do to persuade your bank or card issuer for a limit enhancement on your credit card:
- Use your credit card regularly: Regular use of your credit card shows banks that you are not just a card collector, and providing you with a higher limit would mean more business for them. Try to use your card every month across various merchants.
- Maintain a good credit profile: Make sure to consistently make timely payments on your credit card bills and other loans as well. A strong payment history demonstrates your creditworthiness and responsible credit behavior. Higher creditworthiness means banks can trust you more with credit.
- Keep credit utilization low: Try to keep your credit card utilization ratio (the percentage of available credit you’re using) below 30-50%. Keeping it low shows that you are not overly reliant on credit and can manage your finances effectively. Keeping your ratio more makes you seem credit-hungry, which isn’t something banks and card issuers consider a positive trait.
- Increase your income stability: A stable and steady income reassures banks that you have the means to repay a higher credit limit. If you have a salary account with the same bank from which you have your credit card, it automatically serves as a deciding factor for credit limit enhancements. In the case of manual CLEs, you have to provide updated income documents or proof anyways, so try to build your income too.
- Regularly review and update your credit profile: Keep track of your credit report and ensure all information is accurate and up to date. Correct any errors promptly, as inaccurate information can negatively impact your creditworthiness.
- Engage with your bank: Maintain a positive relationship with your bank or card issuer. Regularly use your credit card, stay in touch with customer service, and consider any promotional offers they provide. Building a good relationship with your bank improves your chances of being considered for a credit limit enhancement.
- Monitor credit limit enhancement opportunities: Stay informed about your bank’s credit limit enhancement policies and review cycles. Some banks may automatically assess your account for enhancements periodically. Keep checking your email, SMS, and banking apps.
- Maintain high NRV: If you maintain a high Net Relationship Value (NRV) with your card issuer bank, it’s worth considering requesting an additional credit limit. Certain banks offer limit enhancements for customers who maintain a substantial relationship value. If you have funds lying around, park them in your bank, or go for a deposit scheme. If you are on the lookout for a loan, approach your bank. All these steps increase your NRV with the bank.
- Request a credit limit increase when eligible: If you believe you meet the criteria for a higher credit limit, proactively reach out to your bank and submit a request. Don’t be shy here. Provide any required documents promptly to support your application.
- Ask for a limit match: Some banks provide credit card limit enhancements based on the credit limits of your other cards. It’s similar to a hotel loyalty program’s status match or price match on online marketplaces. You can request a credit limit match from these banks by providing details of your existing credit card. While not all banks offer this option, it’s worth inquiring if you want to increase your credit limit. You may be required to submit statements of your existing card for the past few months, so make sure the card in question is not new.
So, what did we learn?
Increasing your credit card limit can provide several benefits, including greater financial flexibility, improved credit utilization, and enhanced purchasing power. By following the tips and tricks outlined in this guide, such as maintaining a good credit history, managing your finances responsibly, and engaging with your bank, you can increase your chances of obtaining a credit card limit enhancement.
Frequently Asked Questions
Is it good or bad to increase credit limit?
A higher credit limit and lower credit utilization ratio contribute to a better credit score. A strong credit score opens doors to improved credit instruments and interest rates. Having and using a higher credit limit wisely can have significant benefits in the long run.
Do credit card limits increase automatically?
Yes, banks and issuers periodically access credit accounts and offer credit limit enhancement offers to worthy customers. If you have a good credit profile, and repayment history, and you use your credit card regularly, you increase your chances of natural automatic credit limit increase.
How can I increase my credit card limit?
You can check with your card issuer or bank if you have an automatic limit enhancement offer. If you don’t, you can manually request them for a limit increment by submitting the necessary documents.
What is a good reason to increase credit limit?
A higher credit limit has several benefits, including increased financial flexibility, better (lower) credit utilization, enhanced purchasing power, and the opportunity to enjoy additional rewards and benefits.
What is the disadvantage of increasing credit limit?
The primary disadvantage of an increased credit limit would be more debt. A higher limit can also tempt to overspend, ultimately pushing the borrower into the spiral of credit interests and debt trap.
Remember to always assess your financial needs and repayment abilities before seeking a credit limit increase, and use credit responsibly to maintain a healthy financial profile. With these strategies in mind, you can work towards obtaining a higher credit limit and maximizing the potential of your credit card.
That will do it for this guide. We hope this post was helpful. If you have any doubts or queries, feel free to use the comments section below.