Unexpected expenses can creep up anytime without giving you the slightest hint. To cover those expenses, you may not have the cash ready. And perhaps touching your rainy day fund is not something you want unless your regular source of income has been disrupted.
So, what’s your third option? Glad you asked! How about increasing your credit card limit? Have you been considering it for a while?
Here’s everything you need to know about the credit limit increase:
What’re the Criteria for Approval?
If you have been religious with timely payments, you already are in the good books of the credit card issuer. The good news is that your credit card limit can automatically be increased if you have at least six months of excellent payment history.
Also, if your initial limit is considerably low, there’s a good chance of that happening. However, your credit card company will not increase the amount by a huge percentage. The automatic increase happens gradually; in smaller amounts.
Hence, the second method is asking for a credit limit increase. Before that, you must take the following considerations into account:
Credit Score and Present Income
A CIBIL score above 750 makes you a trustworthy candidate in the eyes of the issuer. They believe that you are capable of repayment and thus will not hesitate to increase the limit.
Another solid ground for approval is an increase in your income. When you first applied for a credit card, your then income may not have lent you the desired limit.
However, now that you have good money coming in, your request for a credit line increase is likely to be accepted. You will, of course, have to submit the proof of income before that. This way your card issuer will be able to trust you with larger payments.
Besides, a solid repayment history will tip the scales in your favour! Hence, it’s important to pay credit card bill online in a punctual manner.
How to Request an Increase?
Well, there’s the option to wait for the issuer to increase your credit limit automatically. However, if you have pressing matters at your hands, waiting may not cut it. Besides, an automatic increase is not guaranteed.
Some credit card companies wait for at least a year to observe your repayment history before increasing it automatically. The policies differ with each card issuer. For instance, some companies review your credit report if you have requested a large increase.
Other companies may choose to do so even for a smaller request. This is important because a credit report pull will negatively affect your CIBIL score.
Hard Pull vs Soft Pull
This is a critical facet that you must take into account before dialling the number of your credit card company.
A soft inquiry appears on your report but does not affect your score. On the other hand, a hard credit inquiry appears on your report as well as lowers your CIBIL score.
It will keep showing up in all your records for two years at a stretch. You certainly don’t want that as it will affect your chances of getting loans and credit approved in the future.
Clear Your Debt
If there is significant existing debt such as home mortgages and student loans piling up, you should pay that first before seeking an increase. Failing which can result in a hard inquiry, the consequences of which have been clearly laid out.
It’s always good practice to ask the issuer if the request can result in a hard credit inquiry. If their answer is yes, you may want to wait for some time to clear your debts.
How to Proceed With the Request?
For most credit card companies, there are only two ways to go about it. First is checking their website. Scan it, and you may find an option to request a credit limit increase.
It is just that simple. All you have to do is fill in your debt information and provide your latest income proof.
Another method is to dial their phone number that is usually printed at the back of the credit card and talk to the assigned customer service representative.
They will evaluate your eligibility for a credit limit increase. Moreover, you may be asked questions like reasons for the increase and how much you want it to increase.
Bring Your Credit Utilization Ratio Down
If you want your purchasing power to increase, obtaining a bigger credit limit is the way to go. Another key benefit is that it reduces your credit utilization ratio unless you decide to go on a shopping spree!
Let’s take an example to understand this. If the current credit limit is INR 3,000 and you are utilizing INR 1500 or 50% of it, that will reflect badly on your CIBIL score.
The utilization rate should be below 30%. In that case, getting a larger limit makes sense. For instance, if the increased limit is now INR 6,000 and your spending remains the same, i.e. INR 1500.
The credit utilization rate then reduces to just 25%. That’s a 50% reduction! It will certainly bode well for your CIBIL score and improve it even further.
Can’t I Get a New Credit Card?
Certainly, you can!
Have a look at the best ICICI credit card or any other credit card and get a new one approved! If you have an excellent credit report, chances are you may get a new credit card with a higher limit.
Plus you will receive all the benefits and rewards that come with a new card. Build an exceptional repayment record on your new credit card and get cashback, miles, and points for each purchase.
When Does the Request Gets Denied?
If you are between jobs, chances are you will not qualify for a credit line increase.
As mentioned before, you are required to provide proof of your current income. Therefore, you should wait to secure a new job and then contact your credit card issuer.
Apart from that, a higher credit utilization rate is a sign of distress. The more debt you have built up, the slimmer your chances become.
Besides, having several new credit cards already can go against your favour. In that case, the issuer will feel reluctant to extend the limit on any of those.
It’s important to ponder over the reason for which you need a larger credit limit. If the extended limit only adds to the mounting debt, it’s something to thinks twice over.
However, if it can pay unexpected expenses, lower your utilization rate, and not generate a hard inquiry, it’s something to look forward to!