Factors That Determine Your Credit Limit
Your credit limit determines how much money you can spend on your card within a billing cycle. Of course, your credit card company will have to consider many factors before arriving the credit limit you are entitled to. No credit card company will offer you a credit limit you will not have capacity to pay back. Credit card limit serves as a control. If there is no any restriction on how much you can spend using your card, this may lead to crisis. There is tendency for you to spend beyond what you have capacity to repay. You can even be tempted to buy things on impulse. On the other hand, default in payment may result to loss to the card issuer. So, card credit limit is actually placed to help you control your spendings and at the same time to protect the card issuer from unnecessary high risk exposure. However, if you consider your credit card limit too low and you desire to increase it, there are certain steps you can take in order to achieve this objective. Follow me as I take you through:
How to Increase Your Credit Limit
Apply for the right type of Card: There are different types of credit cards in the market. Each card has specific features and is tailored to meet the needs of certain class of consumers. If the credit limit offered you on your card seem too low, it may be as a result of the type of credit card you applied for. There are certain credit cards that offer the same credit limit to everybody regardless of the credit score of the individuals. If that is your case, you may need to apply for the card that offers higher credit limit.
Improve your credit score: Credit score is one of the factors that credit card companies look at to determine your credit limit. If your credit score is poor, your credit card limit will definitely low. So, if you want your credit limit increased, you can’t get it by wishing. You need to improve your credit score. You can do this by ensuring that you pay your card balance at every billing cycle. Your card issuer may not be willing to increase your credit card limit if you are finding it difficult to pay your current card balance.
Increase your income level: If your credit card limit is low to pay your monthly bills, you might seek for a way of increasing your income. This might require that you change your job where you can be earning higher pay. Alternatively, you may combine jobs where possible. Having two or three sources of income will increase your disposable income. You can use this as a basis for higher credit limit. Besides, if your spending habits remain the same, this will reduce your credit utilization ratio. This will in turn have positive impact on your credit score.
Re-organize your spending and payment habits: If you desire to enjoy higher credit limit, then your credit worthiness should not be questionable. If you use your credit card more regularly and at the same time pay up your balance without carrying any balance on your card, this will improve your credit history. You can even try to pay up your balance before the end of the billing cycle. Regular use coupled with timely payments may suggest to the card issuer that your credit needs have increased. Since you don’t have problem paying your card balance, it might be a good argument that you will also pay your balance if your credit limit is increased.
Cut down on number of existing credit cards: There might be a situation whereby you are holding many credit cards thereby making your credit limit to be spread thinly across board. If that is the case, you can decide to close the cards that don’t add much value to you. If you have balance on them, you should make sure you pay them off. By doing so, your debt to income ratio will come down. Your credit card company can increase your credit limit based on that
Make Personal request: There is a statement that I keep in my mind till date. Someone once told me; “there is no crime in asking. The worst answer you can get is ‘no’”. This statement has helped me in many occasion. Therefore, if you desire to increase your credit limit, you can approach your credit card company and make a request. If you don’t make a request, it could be assumed that you are satisfied with your credit card limit. It is better to ask then to continue suffering in silence.
Direct offer: If you have been using your card for some time with good spending and payment history, don;t be surprised if your card issuer offers you increased credit limit. In most cases, people usually see this as a form of trap. Well, it does not necessarily mean that your card issuer wants to push you into debt. The truth is that, card companies do not offer increased credit limit to everybody. They only offer it to people they consider creditworthy. If you are offered increased credit limit, you are at liberty to decide whether to accept or reject it. But it can be advantageous to accept such offer because of some benefits that come with increased credit limit. Some of these benefits are discussed below:
Benefits of increased credit limit
Low credit utilisation ratio: If your credit limit is increased and you don’t increase your spending, your credit utilisation will come down. Also, increasing credit limit on an existing card is considered better than applying for a new credit card as the new credit card tend to shorten your credit history. Actually, increased credit limit has potential to help improve your credit score.
Access to cheaper loans: If you want to apply for personal or auto loan, the concerned financial institution will like to consider your current credit utilisation ratio. Having a low credit utilisation ratio can qualify you for low loan interest rates as you will be considered low risk customer.
Readily Available fund: You may not know how important high credit limit may be until you are faced with emergency which may require immediate disbursement of fund. Even if you are not utilising your credit for now, you will enjoy peace when you know that funds are readily available when needed. It is said that money is most expensive when it is needed. If you are short of fund during emergency, you will be willing to ready to accept any terms you may be offered in that very condition. But if you have a credit limit that allows you cover payments for emergency, the cost will be cheaper.
Large Purchases: Have you ever walked into supermarket and saw something you would have loved to buy if only you have enough credit? If you have a high credit limit on your card, you can take advantage of some offers especially during Christmas and special holidays. Some of the offers during such times usually comes with rewards or special discounts. So, large purchase can help you save some costs.
I don’t want you to be carried away with the benefits mentioned above. If increased spending is your motivation behind your request for increased credit limit, you may soon find yourself in debt. So, if you are the type that cannot control your spending and you know you may not be able to pay your card balance in full at each billing cycle, you should not bother to apply for increased credit limit. Even, if your card issuer offers to increase your credit cash balance, it may be better to decline the offer.