More than 60 million Indians depend on credit cards to shop and pay their bills, and that’s why many people want credit cards with high limits. So, what qualifies you for a higher credit card limit? A good credit score and many more factors that banks check before approving your request.
Here’s how banks set your credit limit and some simple hacks to increase the limit that you have.
What is a Credit Card Limit?
A credit card limit is a limit set by banks on a credit card issued to a customer. If your credit card limit is INR 100,000, you cannot spend more than the approved limit. The credit card limit is decided or set by the bank before approving a customer for a credit card. Some other important factors also decide a customer’s eligibility.
How Banks Determine Your Credit Card Limit
It’s a known fact that the credit card limit is based on an individual’s creditworthiness. When you apply for a credit card, banks or other financial institutions decide your credit limit through your credit score. They also check your income, employment status, spending habits, age, ongoing debt, payment and credit history.
Many financial institutions offer credit cards with predetermined limits. For example, when a bank issues a card with a limit of INR 2 lakh, this fixed limit applies to anyone who chooses that product. Other institutions don’t have this option and might conduct a deep customer analysis before approving them for a card with a higher limit.
But if you are new to credit and don’t have a credit score, the chances are that you might get a lower credit limit. This is where banks show faith in a new customer and monitor their spending and payment behaviour. If everything goes well and you are able to make your payments on time, your limit will increase gradually.
How to Increase the Credit Limit on Your Credit Card
There are many ways to improve your credit limit to one that you’re happier with. It requires a bit of financial discipline, some planning and patience.
Let’s take a look at your options.
- Clear your dues on time
The best way to improve your credit limit is to clear your credit card bills on time. Defaulting on a payment harms your credit score. Always try to pay your bills before the due date, and this will also demonstrate your repayment ability to the bank and win their trust.
- Don’t max out your credit limit
Don’t spend everything. A credit card is a necessity that helps you in emergencies. Spending up to 30% to 40% of your credit limit is advised because low credit utilization indicates that you are not dependent on the credit card to manage your expenses. Spending less will also allow you to clear your dues easily and increase your credit score.
- Clear your existing loans
Before requesting your bank to increase the credit limit, pay off your ongoing home or personal loan (any loan). Banks check your current debt before approving your request. More debt means a lower chance of getting a credit limit increase.
Income is the most important factor that determines your credit card limit. Submitting your updated income proof helps you get your desired credit limit from banks. In most cases, banks don’t go out of their way to increase credit limits for their current customers. Submitting your payslips and updating your information with the bank will increase your chances of getting higher limits.
Benefits of Increasing Your Credit Card Limit
Maintaining a good credit score increases your credit card limit and unlocks many other benefits for you in the long run. An increase in your credit card limit means that your bank trusts you and considers you safe and reliable. This will help you get home, personal, consumer loans, etc., at attractive interest rates.
It will also increase your overall credit score and allow you to negotiate for better interest rates while applying for a loan. A higher limit will also help you during medical emergencies, and your card will come in handy when you need it. You will also get some other perks like airport lounge access, discounts on flight tickets, e-commerce and reward points.
What is the Difference Between the Total Credit Card Limit and Available Credit?
A credit card limit and available credit are not the same.
Total credit limit – is the borrowing limit set by your bank or other financial institutions on your credit card. Crossing the credit limit will be often penalized in the form of an over-limit fee.
Available Credit Limit – is the current available amount on your credit card.
For example, if your credit card limit is INR 10,000, and you have spent INR 3,000, your available credit limit is INR 7,000. The total credit limit is INR 10,000.
Can Banks or Lenders Change Credit Card Limits?
Yes, they can because they are the ones who will provide you with a credit card. For instance, if you use a credit card, clear your dues on time, and keep the credit utilization low, the lender or bank will increase your credit limit. After having a credit card for a while, you can always check whether you are eligible for an increase in the credit limit yourself by calling your bank representative. But if you fail to meet the payment deadline and the amount keeps piling up every month, the bank or lender will reduce the credit limit. This will impact your credit score negatively.
A credit card is like an emergency fund that shouldn’t be misused. It’s best if your credit card is used for essentials, utilities, bills and other requirements. An increase in the credit limit has many perks, but it also draws in the temptation to spend more. You should always keep your credit utilization ratio as low as possible, never miss your payment deadline, maintain a good credit score and not apply for too many credit cards.
If you are someone who can withhold the temptation to use the credit card, with will power, then there is usually nothing to worry about. It’s good to notice your own spending behavior, and notice when you feel compelled to spend more, and ask yourself a question just before you do, like a quick self-check before each purchase.
Questions like, is this something I need right now, do I really want this right now, is this the most important thing for me, am I spending or living beyond my means, etc. Are great questions to ask yourself quickly while you are at a store, or purchase counter! You can also choose to never live off a credit card. Don’t go beyond your credit limit if you haven’t availed the option for over-limit transactions. Always cut your coat according to the cloth you have. Spend only when you need to. Not when you want to.