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Having a good credit score and then maintaining it is crucial to set your credit history. It’s the only way to get all the perks of owning a credit card. One way to keep the credit score on the good radar is by paying bills on time and keeping a clear debt history. However, to blunt the debt effect, you might think of increasing your credit limit. But it does sound like a one-way road to overspending, right? Wrong!
Let’s say you start up well with a top company card like secured credit card Canada and applied for a $300 limit, with a bad credit score. And, now that you have been enjoying the service, keeping a clear payment history with a good credit score, you want to take things up a notch. So, you are thinking of increasing your credit limit to maintain your credit report.
Wondering whether this is a good idea or not? Do you want to know how to do it? Do you worry about the disadvantages or if it will hurt your credit score? Find answers to these and so many other queries in this one blog. Let’s dig in!
Why Consider Increasing Credit Limit?
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Before reading how you can increase your credit limit, the question arises, why should you consider it? Or, why do you need to do it? First of all, there could be several reasons but one being the most common is:
- You started at a low-security deposit for your secured credit card (secured payment is usually your credit limit)
So, now that your account is looking good, you must have wanted to increase the limit to make it useful and easily accessible for an emergency fund. Other reasons why you should consider increasing the limit are:
- It helps in improving credit score
- It can aid in lowering credit utilization
- Higher spending limit generates high-value rewards
- Increased limit might be helpful for high amount loans
Investopedia explains in their detailed search that one of the highlights of credit limit increase is to maintain a low credit utilization ratio. Of course, to improve your credit score. And, the main reason to keep it low is that the FICO score takes the low credit utilization ratio into account to measure your credit score. Here are some ways you can increase your credit limit:
How Your Credit Limit Is Determined?
Your credit company determines your credit line by taking a few points into account. So yes, not every cardholder is eligible for a credit limit increase, and not everyone gets accepted by the company for it. But, they do cross-check crucial points to see whether or not you deserve a credit line increase.
However, your credit limit also depends on your type of card. For example, if you use a secured credit card, your deposit as security becomes your credit limit. While if you use other cards, here are some of the basic things most companies analyze:
- Credit score: The card issuer checks the credit score to see if it is bad or good and whether you can improve or maintain it or not. But, of course, there’s always a way to increase young credit scores.
- Credit payment history: Whether or not you pay your credit card and other bills on time. Or if you have any previous history of transferring the debt amount or a bankruptcy case.
- Total income: If you can afford to have an increased limit and whether or not your income covers all your expenses. You might also have to submit your rental documents (depending on the company’s policy).
- Large expenses: How many times have you made big enough purchases with your credit card.
- Credit utilization: The company usually analyses your account balance, how much you spend every month, and if you spend more than your limit.
- Debt history: They can look into your debt-to-income ratio to see your spending limit compared to your account’s credit limit.
- Other factors: The company might have a strict credit policy, a pre-set limit, or if anything, a poor economic time.
These and so many other Different factors can affect a company’s underwriting standards.
Ways You Can Increase Your Credit Limit
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Increasing a credit limit seems like an upgrade whether you use a Secured visa card, debit, or credit card. It can be beneficial or disastrous depending on your overall credit history and report. But, of course, you have read all the reasons why you should be considering it. Now that you have decided why you need it but do you know how you can do it? No? Well, you are about to.
Automatic Increase
Some companies offer their cardholders an automatic credit limit increase after every few months. Depending on the companies policy, almost all the cardholders get an increase limit on the decided time. Of course, if
- You are considered a responsible cardholder
- Your income is steady
- Your card history looks good
- You can afford an increase in the limit
You might don’t need to apply for a credit line increase particularly. But, not all companies have this policy, and you have to do it by yourself.
Submit An Online Application
Go on your company’s official website or mobile application and look for the form to submit an online application. Provide the necessary details like income, report, credit score, and other things, and simply give it a go.
You might get an instant approval response. But, sometimes, it can take more. And, you have to submit detailed documents of a few things like income statements, the reason for the increase, or other similar attachments. Once everything is clear and verified, your application will be approved.
Call The Helpline Number
If you don’t understand the online application process, you can always call the toll-free number or their helpline. First, talk to customer support and ask them to increase your account’s credit limit. After that, you might have to answer a few necessary questions, and they’ll roll out your application.
Visit Your Credit Card Company In-Person
If it is feasible, you can always visit your credit card company to initiate the request. But, always take the income statement, credit report, and other similar documents along to show the proof right then and there.
However, it is not necessary that your request will be approved. There might be enough reasons to deny your request. Click to read a detailed report of thebalance.
So, what if the company rejected your credit limit increase request? What to do then? Here are some tips on what to do and how to handle that:
- Wait Patiently: If, for some reason, they denied your request, ask them the cause, and work on correcting that. Then, finally, reapply to start a new request.
- Apply For A New Card: You can always start afresh if you need to increase the limit immediately. Deposit a higher amount to make it your secured credit card limit. And, if you have been a good cardholder, it won’t be difficult to get a new one.
- Try A Lower Credit Limit: If you were trying to double your credit limit, consider decreasing your amount. Sometimes, your card type doesn’t support the limit you were requesting. So, if you can lower the limit a little, it might help your case.
- Improve Your Credit Score: If you think your credit score is bad to match the credit limit, wait for a little, and try to improve your credit score first. Then, when it’s better and falls on a good credit score list, submit another application for the credit limit increase.
Pro’s & Con’s Of Increasing Credit Limit
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You might have started with a low secured payment or a credit limit. And, as your income grows, the expenditures also increase. So, with your new necessities and responsibilities, you feel urged to increase your credit limit to avoid a bad credit score.
But, before you decide on that, you must know the advantages and disadvantages of doing so. So here’s a comparison breakdown of some of the benefits and drawbacks of credit limit increase:
| Pro’s | Con’s |
|---|---|
| Allows to do large purchasing | May urge you to overspend |
| Comes in handy in case of emergency | Hard to pay the bill in full |
| Directly proportional to better credit score | You might have to pay more interest if you don’t pay bills timely |
| Low credit utilization ratio | Company might call a soft or hard inquiry on your card |
| More credit usage equals more rewards | Using large credit payments put you at a debt risk |
Every new step has its perks and downfalls. So, is the case with an increased credit limit. It can help you in many situations, but it may also put you in some pretty bad ones if you don’t check your spending. Like, the first thing you’ll be attracted to will be the overspending! A guide by CreditCardsCanada highlights some ways on how you can avoid it.
Still, if you have increased expenses, it is only wise to increase your credit limit. For instance, if you owe $350 on the $400 limit to your company, your credit score will take a major hit. However, if you increase your credit limit to $800, your credit utilization ratio will lower, thus improving your credit score.
In the end, it all depends on your spending lifestyle and what works for you.
Frequently Asked Questions
Before moving on to summarize the ‘how to increase the credit limit,’ let’s find answers to some of the most frequently asked questions by you:
Can a credit limit increase hurt your credit score?
Not necessarily. As long as you keep your payment history clear and pay all your debt or dues on time, it won’t affect your credit score badly. In fact, it keeps the credit utilization low if you avoid overspending.
Is increasing the credit limit a good idea? Or should you get a new card instead?
Yes, you can opt for a new credit card, but it might decrease your credit score and lessen your credit history. While, on the other hand, increasing your credit limit lowers the credit utilization ratio, thus improving your credit score.
How can you increase your credit limit?
Paying bills on time, keeping credit utilization ratio low, paying off that certain credit card, updating your income with your credit company, boosting credit score, and reducing financial obligations are some of the easy yet working ways to increase your credit limit.
Can overpaying increase your credit limit?
It is good to keep your balance zero but overpaying will do nothing better than paying in full. It may improve your credit score, but it won’t necessarily increase your credit limit.
Is asking for a credit limit takes a long time to approve?
Sometimes you might get instant approval by submitting the request from your account’s page, while other times, it may take a few days to get the confirmation. It really depends on your credit company and if they need to cross-check some documents for approval.
How often can you apply for a credit limit increase?
Applying for an increase every six months is a good idea for your overall credit score and credit report. And, of course, if you’re maintaining your credit history, there’s always a high chance of approval.
Final Verdict
Getting a credit limit increase can be more beneficial than you think. However, it’s never a good idea if you have a habit of overspending. But, in general, an increased credit limit is useful for emergency funds or to get big rewards. In addition, it will let you improve your credit score and spend large on financial necessities without a high utilization ratio. And, there are endless ways you can have your credit limit increased. Don’t worry.
We have explained all the ways and what you need to look for if you’re interested in getting approval to increase the credit limit. Lastly, always have a detailed look at your credit history and report before applying for the increase to avoid any hard inquiry on your account.
