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Credit cards have become one of the most popular ways to spend money. They come with a predefined credit limit, that can be used to make purchases. However, initially, credit card issuers may offer you a lower credit limit, depending upon factors such as your credit score,  current income and more. But, once you start using your credit card and pay the dues on time, credit card issuers often increase your credit limit.

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Whether you should go for this increase in credit limit or not, remains a valid question. Mentioned below are the pros and cons of getting your credit limit increased to help you make an informed decision:

How to Increase Credit Card Limit
Advantages of Increased Credit Limit Increased
Disadvantages of Increased Credit Limit
Bottom Line
How to Increase Credit Card Limit

One of the ways to increase your credit card limit is to contact your card issuer and submit a request for a credit limit increase. While making this request, you may need to submit valid income proof and employment details. However, keep in mind that the approval depends on the issuer’s internal policies and your existing credit history. If your financial profile has improved over time and you’ve maintained a good repayment history, your chances of approval are significantly higher.

Besides this, card issuers may also offer pre-approved credit limit increase from time to time. In such cases, you might receive a call, SMS, or notification regarding the same. Usually, no additional documents are required in such cases, as the offer is based on your past usage & repayment behaviour and is pre-approved by your issuer.

Advantages of Increased Credit Limit Increased
Improves your Credit Score

While calculating your credit score, Credit Bureaus look at your Credit Utilization Ratio (CUR). A CUR is simply what you owe divided by your total available credit limit. For instance, if your credit limit is Rs. 1 lakh and you have spent Rs. 30,000 your CUR would be 30%.

A higher CUR makes you look credit hungry and issuers might hesitate to give you a credit card. Therefore, if you like to spend more via credit cards, it would be beneficial to accept the increase in credit limit if offered by the credit card issuer. Else, you can also contact your issuer and apply for an increase in your credit limit. In case your issuer refuses to increase the limit, you can apply for additional credit cards. This way, your total credit limit will be increased and your CUR would remain low.

Let us understand this with an example

You have a credit limit of Rs. 1 lakh and you spend almost Rs. 50,000 every month. This would make your CUR to be 50% which is not considered good by the credit bureaus. Now if your credit limit is enhanced to Rs. 2 lakh your CUR would drop down to 25% which would reflect your creditworthiness and not impact your credit score negatively.

Suggested read: Tips to lower your Credit Utilization Ratio (CUR)

Enhances your Chances of Loan Approval

Having a bigger credit limit improves your chances of getting a loan on your credit card with a greater limit.  Also, since your CUR is lowered with a higher credit limit, there are greater chances that your credit score will improve. Hence, the greater your credit score, the more are the chances of loan approval and that too at a lower interest rate.

Helps in the Time of Emergency

Having a higher credit limit acts as a source of emergency funds and can help you deal with financial shortfalls. A higher credit limit will enable you to meet financial shortages by routing unplanned expenditures through your credit card while maintaining your liquidity. Additionally, if you are unable to clear your credit card debt by the next due date, you can convert all or a fraction of it into Equated Monthly Installments (EMIs). This way, the interest rate on the outstanding balance can be reduced to a certain extent without paying the high finance charges.

Disadvantages of Increased Credit Limit
Credit Card Debt

Although a higher credit card limit allows you to spend more, it may also lead to more debt if not handled carefully. With a higher credit limit, one may end up spending more impulsively than they can afford to repay. If you fail to pay your bills on time, it will negatively impact your credit score and make it difficult for you to obtain better credit in the future.

Credit Card Interest

If you do not pay your debt in full each month, you will probably end up paying more interest on the amount owed. As a result, if you have increased your credit card credit limit, there is a possibility that you may be unable to pay your bill in full. As a result, as a user, be aware of your spending habits and try to pay your credit card bill in full every month.

Bottom Line

Getting a credit card limit increase may depend upon your choice as well as the need. In case you can be a responsible spender and know how to manage your finances efficiently, getting a credit limit increase may help you deal with your financial struggles. Else, you may end up incurring a lot of debt and hampering your finances as well as credit score.

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