When used smartly, an increase in credit limit can help enhance your credit score. If you are wondering how to increase the credit limit on your card, this Buzzle article will give you in-depth information about the same.
It is often said that banks like to give money to people who don’t need it. Following the same rule, when asking for a hike in credit limit, refrain from sounding desperate. This will increase your chances of getting the desired credit limit.
Having a higher credit limit can have several benefits. It may be useful during emergencies, accord convenience of making large purchases, increase rewards, etc.
If there is a considerable difference between your credit limit and actual expenditure, it will boost your credit score. Lowering your credit utilization ratio will increase your credit score as it accounts for 30% of your FICO score. This is exactly why many people apply for increasing the credit limit on their cards.
However, if proper care is not taken, with each credit inquiry issued by your credit card issuer, your credit score will get affected adversely. This article will tell you how to increase the credit limit on your card.
Understand Why You Need to Increase Credit Limit
Unless you are absolutely sure that you won’t be regretting the decision of increasing your credit card limit, don’t indulge in it. You should have a convincing reason to increase the credit limit on your card.
As you know, with the increase in credit limit, if you default on any payment, it may attract a heavy interest. This may affect your credit score drastically. Hence, it is better to increase the credit limit only if you are sure that you will control your expenditure and not land in debt.
However, if you are increasing the credit limit for enhancing your credit score or utilizing it during an emergency, then you may go ahead with it.
Know Which Card’s Credit Limit You Would Like to Increase
It is important that you approach a credit card company which will accept your request. Imagine a scenario where you requested a credit card company to increase your credit. However, the credit card issuer may have preferred to verify your credit score first.
This is known in the world of finance as the “hard pull.” Such inquiries can lower your score by 5 to 10 points or even lesser. However, you may continue to experience the impact of this on your credit score for about a year. You may think that it is not much; however, if you are planning to make a huge investment, like a house or car, every single point will count. This will matter even more if you are struggling with a weak credit score, which can be lowered by almost 10 points.
Get a Reality Check Done
You must know the exact amount of increase you are expecting on your credit limit. If you ask for a huge hike, like doubling your credit, there is a possibility that your account will be flagged for further review and investigation. Such inquiries will deflate your credit score.
This may also take up a lot of time, and you will have to wait for a few months before you send them a request once again. On the other hand, if you are asking for an amount that is too low, you will miss out on an opportunity to have a higher credit limit.
So, are you wondering how much hike should you ask for? Ideally, you should ask about 10 to 25% hike in the current credit limit. It is advisable that you don’t ask more than what is affordable, as you may not be able to repay it.
When to Ask for a Credit Limit
Timing of your request to increase your credit limit will also matter. If you have a compromised credit, it is better that you wait for some time before applying for a hike in the credit limit. This is because credit inquiries of any kind will hurt your existing credit score badly.
The damage will be severe when the credit score is lower. Many credit card companies will automatically review your credit after six months for increasing the credit limit. However, if this doesn’t happen, you can always ask them for a rise.
However, it is a good idea to wait for six months after the card is issued. Meanwhile, ensure that you make all the credit card payments on time, and there are no pending dues. Late payments will affect your credit limit and credit score.
Gather All the Supporting Documents
It may so happen that the credit issuing company may ask you to provide proof that you are worthy of increase in credit limit. Hence, showing them that you have paid the bill diligently for 6 months will not be enough. It will be a very smart move if you can collect a number of documents that will corroborate the fact that you totally deserve the increase. This will include check stubs or tax returns to show that you are now in a better financial position due to an increased income.
You may also show the debt accounts which you have closed and a favorable debt to income ratio. It is important that you bring any kind of change in occupation to their notice, as it will increase your chances of getting a higher credit limit. At the end, make them aware of your customer loyalty, and show them that you have always paid your bills on time.
Don’t forget to stress on the fact that you have been their customer for a certain period of time. Tell them that you are going to do a balance transfer; this will surely make them increase your credit limit. Hopefully, if everything else fails, this will work for you.
Approach the Credit Card Issuer
Now comes the actual task of requesting for a credit limit increase. Remember, now that you have done your homework, it will be easier for you to go ahead and ask for a hike in credit limit. You can either utilize the issuer’s automated e-system for placing your request or call up their toll-free number and speak to an executive.
If you are speaking to an executive, always remember that you will have to focus on the fact that you are a loyal customer and haven’t defaulted on your payments. Give them a convincing reason about increasing your credit limit.
For example, you can tell them that since you want to put all your expenditures on a single card, you want to increase its limit, or you can also tell them that you travel frequently. Whatever you say, don’t sound desperate to increase the credit limit.
Don’t Splurge Your Money
It is important that you watch your spending habits. Now, here begins the real problem. Once the credit card company had increased your credit limit, don’t end up splurging your entire balance.
Remember, according to FICO, the difference between your utilization and actual credit limit will be considered while calculating your credit score. Ideally speaking, it should not exceed more than 10% of the total credit limit.
So, if you have a credit limit of $5000, try to restrict your usage to $500. If you use your credit card wisely, it will enhance your credit score and even qualify you for a further increase in the credit card limit in the near future.
If your credit limit is not increased to the number that was expected, you can always follow an alternate strategy. All you have to do is apply for another credit card with the same company. Once you do so, reallocate the credit to your previous card. However, don’t do this unless it is absolutely necessary. Now that you know how to increase the credit limit on your card, try to use it to enhance your credit score. However, ensure that you do not utilize your account for the entire credit limit, or it will have a deflating impact on your credit score.