Your credit limit affects more than just how much you are able to charge on your credit card; it also has a significant impact on the rest of your financial life.
If you know how to make the most of a hike in your credit limit, you may actually improve your credit score significantly while simultaneously increasing your ability to borrow substantial sums of money. This is provided, of course, that you use the hike in your credit limit to your benefit.
The process of demanding a hike in your credit limit is rather straightforward; with that in mind, let’s have a look at how credit limits can be raised and the advantages of doing so.
What is a Credit Limit?
The most money that a creditor will let you charge to a credit card is the amount that is designated as your credit limit. The amount of available credit on a credit card decreases as it is used. Your available credit will hike to the extent that your settlements do, less any fees or other penalties that have been incurred.
Creditors are the ones that decide the maximum amounts that a customer can borrow. When determining the maximum amount of credit you are allowed to have, they may take into consideration the following factors:
- The history of settlements: Do you always pay your settlements on time, including the monthly payment for your credit card? Have you ever tried to discharge your debts through the bankruptcy process or had a bill sent to collections?
- Transactional accounts: How many different accounts do you currently have available to you? What types of loans do you currently have open?
- Transactional history for the account: To what extent have you been using your current accounts for a long time? Have you been filling out a lot of applications for new credit lately?
- Credit utilization ratio: How much of your available credit are you actually using?
Earnings: Can you afford to pay all of your monthly expenses with the money you bring in?
How to Increase Your Credit Limit
You have three simple alternatives for demanding a higher credit limit. A higher credit limit can be demanded in a number of ways, including online, over the phone, or by direct invitation from the creditor.
A hike in your credit limit may normally be demanded swiftly using your online banking or credit account. Included in the drop-down menu should be “credit limit hike” or “credit line hike,” clicking on which will prompt you to supply the creditor with the details they’ll use to assert whether or not to grant you a credit limit hike.
It’s possible that you’ll need to provide more recent details regarding your monthly housing costs or salary. Before applying, you should have a rough estimate of how much more credit you need.
Credit limit hikes are sometimes granted by creditors without a hard inquiry being run, which can have a negative impact on a person’s credit score. If a hard inquiry will be run, the creditor must let you know ahead of time so you may make an informed decision about whether or not to move forward.
Credit limit hikes can also be demanded over the phone by calling the credit card company. You’ll be asked for the same kinds of rudimentary financial details as when applying online.
How Are Credit Limits Calculated?
There are two possible methods for establishing your credit limit. The credit limit on the card may either be set by the issuer or asserted by the creditor after they review your credit report and score. In the latter case, it helps immensely to have a solid credit history.
When you ask for a fresh line of credit, the creditor will analyze your credit history to assert whether to grant your demand, the amount of credit they will extend to you, and the interest rate you will be charged.
You should ask for a higher limit because potential creditors may use your existing credit history to assert what they’re willing to lend you. You can boost your chances of getting favorable terms and interest rates by proving to the creditor that you can responsibly handle a higher credit limit without going into default.
If you are confident in your ability to responsibly handle a higher credit limit, then, by all means, demand one. This financially astute strategy could end up paying huge dividends for you.
What Are the Benefits of Having a Higher Credit Limit?
A hiked credit limit might be a useful tool in the fight against credit card debt.
Most obviously, having a bigger credit limit means you may charge more to your card without worrying about going over your limit, which is especially helpful if you were working with a smaller limit, to begin with, and weren’t able to cover your essential purchases.
The more you use your credit card, the more credits you can earn and the more perks you can receive, including extended warranties and cell phone insurance. When paying with cash or a debit card, you normally don’t get these perks.
If you have a reduced credit utilization rate because your credit limit is larger, this could boost your credit score and make it possible for you to apply for loans and other forms of credit at better interest rates.
Requesting a credit limit hike can be useful even if you don’t think you’ll need the extra funds. Your credit usage ratio will improve when you maintain your current expenditure levels but benefit from a larger available credit. Since other creditors will see that you are not using your full credit line, your credit score may rise as a result.
Is Increasing Your Credit Limit a Good Idea?
There is no exact measurement that can be used to assert how much credit you ought to have, but in general, having a greater credit limit is desirable (provided that you handle your credit in a responsible manner and don’t splurge more than you can handle).
Increasing your credit limit is frequently the quickest and least difficult option to boost your spending capacity.
If you have access to a greater amount of accessible credit, you will be in a better position to charge either a single substantial purchase or a number of smaller ones. You will just have a single account and one statement to keep care of if you hike your credit limit rather than acquiring a new card entirely. This makes it a simpler option overall.
When Should You Request a Credit Limit Increase?
It is entirely up to you to assert when the appropriate time is to demand a hike in your credit limit. And it all comes down to the specifics of your particular life.
Different issuers have different procedures for raising a customer’s credit limit. It is possible that your demand for a hike in your credit limit will be granted right away if you are qualified to receive one. Nevertheless, depending on the complexity of the demand, the evaluation process can take several days.
Additionally, before granting your demand, your issuer may at times inquire as to the availability of extra information.
When your demand for a raise has been processed and evaluated, you will be notified by either an email, an online notification, or a letter as to whether or not you have been granted the hike you demanded.
How Many Times Can You Request a Credit Limit Increase?
There is no limit to the number of times you can submit a demand to have your credit limit raised; nevertheless, the more frequently you do so, the less likely it is that your demand will be granted.
Nevertheless, if you want to improve your chances of having your credit limit raised, you should wait at least six months after opening your account or making your most recent demand for a larger limit.
The circumstances under which you demand a hike to your credit limit so soon after receiving a new card are unlikely to have altered significantly since the provider made its initial decision.
Nevertheless, if you wait for a full year and maintain your account in a responsible manner throughout that time, you would have demonstrated that you are capable of handling the credit limit that is currently assigned to you.
Your financial situation will benefit significantly from your ability to successfully hike your credit limit. Smart credit management is a door opener, as is good money management. Just asking for a hike in your credit limit strengthens your standing with your card issuer.
Are you contemplating asking for a higher credit limit? If you want to avoid any unpleasant surprises, review your credit rating and report first.
Consider signing up for a free credit monitoring service that will keep you apprised of any changes that occur in your credit file. This would ensure that you are always aware of the state of your credit and will help you keep it in good standing.