In present times, the use of a credit card as an alternative to cash is on the rise. Using a credit card has several advantages as it comes with a plethora of benefits like reward points, cash back, and discounts. With the advancement of technology availing a credit card has become very easy, you can apply for it by sitting at your home. Credit cards come with a pre-determined credit limit. Credit limit refers to the purchase limit i.e. the maximum amount of money that you can spend using your credit card. Let’s assume you have a credit card with a limit of Rs. 57,000, it implies you can buy goods and services worth Rs. 57,000 only. You cannot make payments beyond credit limit using your credit card. Banks take into account several factors while determining your credit limit.
Factors Determining your Credit Limit
Your net take-home income is a very important factor that helps credit card issuers determine your credit limit. Generally, you are given a credit card limit of 2-3 times of your net monthly income.
Credit card issuers take into account your credit score to determine your credit limit. Credit score gives lenders an assessment of your loan history. Having a good credit history implies lesser chances of you to default on your loan repayment. Hence, having a good credit score helps you in getting a higher credit limit.
Credit card issuers have laid down certain eligibility criteria besides your income and credit score which are considered while determining your credit limit.
If your credit card limit is low, then there are multiple ways to increase your credit limit. Let’s discuss various ways which can help you increase your credit card limit.
Tips to Increase Your Credit Card Limit
- Repay your credit card dues on time: Use your card wisely and pay all your dues on time. If you pay your credit card outstanding bills on time, then your credit card issuer might consider increasing your credit card limit.
- Use your existing card: If you already have a credit card with a higher credit limit and there are no delayed payments, bounces or defaults, then you can use it to increase your credit card limit.
- The increment in salary: If recently you have experienced an increase in salary, then you can show your current salary slip to the credit card issuer and request them to upscale your credit limit.
- Repay your existing loans: Credit card issuers take into account your existing obligations while determining your credit limit. So, try to repay your existing loans quickly and show all the related documents to credit card issuers. Keeping in mind the low or no current liabilities, they may increase your credit card limit.
Benefits of Increase in Credit Limit
- Having a higher credit card limit saves you from the need of using multiple cards. You can make all payments using one card. You don’t have to apply for multiple cards and memorize multiple security PIN and credit card due to date
- Higher credit limit implies higher spending. If you spend more using your credit card, you earn more reward points.
- Higher credit limit improves your chances of getting any loan at the time of emergency. A higher credit limit gives the bank an assurance that their money is safe with you and you will repay all your loan on time.
Along with the benefits of having a higher credit limit, there are few disadvantages as well like with a higher credit limit you might end up spending beyond your repayment capacity. You will be caught in a debt trap and it will affect your credit score as well. Hence, there is no harm as such in extending a credit card limit if we look at the benefits, but using it wisely is important.
Additional Reading: Top Credit Card Myths and Facts