5 Advantages You Get By Increasing Credit Limit Of Your Card
Is having a more robust credit limit better?
The answer is mostly yes! and rarely no. How much credit is good enough for your lifestyle depends on several factors, like how you use your card, what’s your income, how many other credit cards you own, etc.
Many card holders believe credit limit to be a symbol of status. This may or may not be the case, but, more importantly, higher credit limit indeed has several benefits attached to it.
What’s a credit limit?
It is the maximum you can borrow from the credit card provider using your credit card. The credit card provider, depending on a multitude of factors, can increase or decrease your credit limit from time to time, depending on several factors, including your repayment record, CIBIL score, income, and usage. Although we will say credit limit increases are far more common than decreases. You’d have to have a very poor payment track record before a card company would lower your limit.
How do credit card providers decide credit limit?
Several things are taken into account while ascertaining an applicant’s credit limit. Among other things, banks consider your monthly income, your repayment track record so far, and your current CIBIL score.
A low credit limit is not something you should lose sleep over. Banks periodically revise credit limit of their clients, usually after every 6 to 18 months, depending on their usage, income, and repayment record. If you pay your bills on time and use your credit significantly enough but not regularly to its full maximum limit (most experts agree less than 50 percent of credit utilization is favorable) your credit card provider might soon increase your credit limit.
Advantages of a higher credit limit
- Lower debt to credit ratio
Debt to credit ratio, also known as credit utilization, is one of many factors that affect your credit score. These two are inversely related, that is, lower credit utilization has a positive effect on your CIBIL score.
Increasing your credit limit can help you improve your credit utilization. (Remember, this will happen only if you use your card judiciously and, of course, pay bills on time.)
Let’s consider this example to understand better:
The limit on your credit card is INR 50,000 and your spending is INR 30,000. That is, your credit utilization is 60% (credit availed/total credit available x 100), which is on the higher side. After some time, the bank doubles your limit, but your credit usage is the same. Now, your credit utilization will be 30%, which is within the acceptable limit.
A lower debt to credit ratio is associated with a better control on one’s finances, a quality that every lender wants to see in prospective clients, which affects your credit score favorably.
- Negates the need for multiple cards
Tracking multiple credit cards is anything but easy. Things become a lot simpler if you are using only one card, with a limit that’s high enough to meet your needs. One card minimizes the chances of missing payments because of oversight. It can also help you save on annual fee, as one card is likely to have a smaller annual fee than the sum of annual fee of multiple cards.
- Possibility of higher loans
Banks are careful about offering high credit limit. If your bank offers you one, it means that it considers you a safe asset. You can use this to your benefit to get a better package when seeking a loan from your bank.
- Beneficial in case of a financial emergency
A card with a high limit can obviate the need to borrow money from someone in face of a financial emergency.
- Higher Rewards
Premium cardholders get more rewards from a bank than other regular cardholders, for they are more valuable to the bank than the latter. Therefore, a credit card with a high limit gives you an opportunity to win more and better rewards.
While a higher credit limit means you have more credit at your disposal, you must spend judiciously. Otherwise, instead of being an advantage, the increased credit limit can lead to debt trap, getting out of which is rarely easy.