Credit cards come with credit limits which indicate the maximum amount that the bank extends to you through your card. It is the maximum amount that you are allowed to spend on your credit card. However, this limit is not set in stone; you can request your bank to increase or decrease the credit limit on your card over the time. Whether this request will be approved or not is a matter of timing.
Sometimes, banks may themselves encourage cardholders to increase their credit limit but people are apprehensive, thinking it’s a trap. It may sound surprising but a lot many times, there is no catch in this scheme. Banks consider you to be a really creditworthy customer and hence they are ready to take more risk by increasing your credit limit. An increased limit may be an offer worth accepting as a lower use on higher limit will improve your credit score. It will also increase your spending power and provide better cushioning during financial emergency.
So let’s talk about the right and wrong time to request a limit increase on your credit card.
The Right Time
According to a common saying- “The best time to request new credit is when you don’t need it.”
Yes, when you are not desperate to borrow, you will have better chance at negotiation. Also, a credit that is immediately utilized does not make a positive difference on your credit score. So, it is good to request extra credit under the following circumstances-
When you have a good credit score- Credit score may not be the only thing that banks consider for extending more credit but it is definitely an important aspect. A good credit score means that you are responsible with your borrowings and this is what the lenders require. Banks will be more than willing to offer extra credit limit to those who make all their bill payments on time, never max out their cards and are responsible towards the borrowed money.
When you have got a raise in pay- Banks may reject your request for increasing credit limit if you are at the same income level. An increased income means that you can handle more credit and hence there is greater possibility of getting an increased credit limit if you have recently got a raise.
When you have a good track record- Chances of getting a credit increase are high when you have been a disciplined borrower. Also, if you have availed a number of products from the same bank over a long period of time and maintained a good repayment record, you can easily get a raise on your credit card.
The Wrong Time
Now let us discuss when it is not really a good idea to request a limit increase on your credit card-
When you have moved to lower pay- Banks have no reason to increase your credit limit if you have recently changed jobs for a lower or equal pay, however fulfilling it may be. They look at your financial ability, which has declined, so the request will be rejected.
When your credit score is shaky- Another important thing that defines your financial health is credit score. Even if you have a well-paying job, a bad credit score will come as an obstacle in your way. People who have a bad credit score are considered irresponsible towards their finances and hence their request is more likely to get rejected.
When you have applied for a loan- Applying for a credit increase on different cards at the same time can lead to rejection of all your applications. Also, if you have applied for any other loan- secured or unsecured, wait for its approval before requesting a credit increase. Applying for too many loans at the same time may present you as a credit hungry person which is not considered a good trait by the lenders.
Knowing the right time to apply for a credit increase is important. Most of us think that the worst they can do is reject the application. However, there is something more you should be worried about. Requesting a limit increase is considered similar to applying for a new line of credit. It may initiate a hard enquiry on your credit history and when the request is rejected, it will have a negative impact on your credit score.
There is always a right and wrong time to take a step and the same rule applies for financial decisions. It is best to plan in advance and then proceed.