Credit Card Limit: In today’s world, credit cards are no longer limited to just shopping or online payments; they have become an important part of your entire credit profile. Many people want to increase their credit card limit so that they can easily make large purchases or avoid the hassle of frequently reaching their limit. However, trying to increase your limit without the right information can negatively impact your credit score. Therefore, it is crucial to understand some important things before requesting a limit increase.
How is a credit card limit determined?
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A credit card limit is determined by the bank or the card-issuing company. There is no single fixed rule for this. The bank considers your credit score, credit report, income, existing loans, and payment habits to determine how much limit can be given to you. In simple terms, the bank checks whether you will be able to repay on time if you are given the facility to spend more.
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Timely payments are the most important factor
If you want your credit limit to increase, you must first focus on your payment history. Do you pay the full bill on time every month, or do you only pay the minimum amount? If your record is clean and you have never made a late payment, the bank trusts you more. On the other hand, repeatedly making late payments or leaving outstanding balances can be a major obstacle to increasing your limit.
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Spending too much every month can be detrimental
Many people believe that using the card more will prompt the bank to increase the limit, but this is not necessarily true. If you spend your entire limit or a large portion of it every month, the bank may consider it a risk. This is called the credit utilization ratio. For example, if your limit is ₹1 lakh and you spend ₹80,000-90,000 every month, it indicates that you are heavily dependent on credit. It is better to keep this ratio below 30 percent.
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Requesting an increase yourself can affect your score
There are two ways to increase your credit limit. There are two ways to increase your credit limit: first, when the bank offers you an increase, and second, when you request it yourself. Offers from the bank usually don’t affect your credit score. However, if you request an increase yourself, some banks may perform a hard inquiry on your credit report, which can temporarily lower your score. Therefore, before applying, be sure to ask if it will affect your credit score.
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A higher limit shouldn’t mean more spending
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Increasing your credit limit is only beneficial if it increases your convenience and lowers your credit utilization ratio. If the purpose of increasing your limit is to overspend or postpone payments, it can lead to high interest charges and debt problems. Credit card interest rates are quite high, so consistently carrying a balance can be detrimental to your credit score.
Smart strategies to adopt before increasing your limit
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Before requesting a limit increase, pay your full bill on time for a few months. Keep your outstanding balance low before submitting the request. If your income has increased, be sure to inform the bank. Prioritize pre-approved offers available on the mobile app and avoid repeatedly requesting limit increases. A well-planned approach can not only increase your limit but also protect your credit score.