Your credit line might not be something you pay attention to until you run out of credit to use. When you borrow credit with your credit card, which would have been granted to you by a financial institution, the maximum amount of money that you are able to borrow is known as the credit limit.
As you might have guessed, credit limits are not set in stone. You can negotiate a credit line increase with your lender at any time. In this article, you will learn all about the benefits of increasing your credit line and how you can get a credit line increase from your lender.
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Benefits of a credit line increase
As your expenses increase and your income grows, you might find yourself with a need to request a credit limit increase. Increasing your credit limit can yield several benefits, including greater spending power, a boost in your credit score and easier accessibility than personal loans.
Experience greater spending power
With more credit at your disposal, you will have the means to purchase more services and products. This is convenient when it comes to buying high-ticket items, especially during holidays when people tend to spend more.
Knowing that you can get a credit line increase if you qualify for one can give you more peace of mind. It can also help you avoid using your debit card as often as you otherwise would. If you have good credit, you’re in a strong position to request a higher credit limit from your credit card issuer.
Boost your credit score
Raising your credit card limit will affect your credit profile depending on how you use it. In a positive way, a higher credit limit often translates to a higher credit score because your credit utilization rate is reduced as a result of the increased credit limit.
Also, credit utilization measures how much of your available credit you are actually using. For example, let’s say you have a credit card with a $5,000 limit and your balance is $2,500. Your credit utilization rate would be 50% because that is what you get when you divide $2,500 by $5,000.
However, if your credit limit were to be raised to $10,000, your credit utilization rate would drop to 25% because $2,500 divided by $10,000 is one-quarter. This is beneficial because a lower credit utilization rate is generally better for you and your overall credit score.
FICO calculates credit utilization by looking at all of your revolving accounts collectively and comparing your total balances to your credit limits. So, if you have multiple credit cards with balances, a credit line increase on one card could lower your overall credit utilization rate, which, in turn, can improve your FICO score.
Obtain one more accessibly than personal loans
Qualifying for a credit line increase is more straightforward than qualifying for a personal loan because some lenders raise credit limits automatically if a customer’s credit score improves. Moreover, with credit cards, the minimum monthly payments you make will depend on the amount of credit that you use, making credit cards more flexible than personal loans.
For example, if you only use 20% of your credit limit, you will have a lower minimum monthly payment than if you charge up to your limit. As a result, applying for a credit line increase is usually far easier to do than trying to qualify for a personal loan.
How credit line increases work
Your initial credit card limit is set when your financial institution first issues you a credit card. The bank may increase your limit if you demonstrate that you can manage your account responsibly. But before you request a higher credit limit, the bank will want to ensure you have a good credit score. Here’s how you can ensure that your credit score is in good standing.
Cardholder for at least six months
It takes time before a credit issuer can establish if a new client is eligible for a credit line increase. Overall, you should be a cardholder for at least six months before you request a credit limit increase.
Requesting a higher credit limit soon after applying for a credit card is a red flag for credit card issuers. As such, it could potentially negatively impact your credit score because it requires a hard inquiry, which inherently drops scores each time one is performed.
Solid payment history
Having a solid payment history means you have never paid your debt late. It also means that you have gone above and beyond to repay your debts. For instance, paying down your loans faster by paying more than the minimum balance due every month can make you look more favorable to lenders.
Even if you don’t repay your credit card debt all at once, you need to make sure that you at least pay your minimum monthly balances on time. This will show credit issuers that you take responsibility for your debts and you are working towards repaying them over time.
If you have been making late payments more often than not, now is the time to start making payments again so that you can improve your chances of getting a credit line increase.
No over-limit purchases
Over-the-limit spending negatively affects your credit utilization ratio, which will lower your credit score. Credit issuers often look at a person’s credit score when assessing credit line increase applications. A low credit score and over-limit purchases indicate that you aren’t good with money, causing lenders to believe you are a high-risk borrower.
Ensure the factors that contribute to your credit scores, such as your credit utilization ratio and your payment history, are in order. This will increase the chances of your request for a credit line increase being accepted. Having strong credit indicates you’re a low-risk borrower, which makes lenders more likely to increase your credit line.
Most banks ask customers to provide their annual income when they request a higher credit limit. If your income is enough to service your existing debts and cover monthly expenses, your chances of qualifying for a credit line increase will go up. An increase in your income will also put you in a good position, meaning your application is more likely to be approved.
How to increase your credit line
If you’ve been using your credit card responsibly and you are considering the idea of applying for a credit line increase, you might be wondering which steps you should take. Here’s what you should do when you want to request a credit card limit increase.
Contact your bank
Credit limit increase policies vary from one issuer to the next. Nevertheless, if you qualify for a credit limit increase, the first step you should take is to contact the issuer. Once you contact the issuer, the request will be either approved or declined, depending on your circumstances.
If your income has decreased, you have a bad credit score or the card is still considerably new, your request won’t be approved. Credit card issuers are more likely to accept your request immediately if you have a good credit score.
Provide your personal information
Most card issuers allow their customers to request a credit line increase online or over the phone. Regardless of the method you opt for, you’ll have to provide personal information, such as your monthly credit card spending habits, your rent or mortgage payments, your employment status and your annual income.
The issuer will weigh this information with various other factors, such as your credit rating. This is how issuers will decide whether to decline or accept your request.
In most cases, the issuer will approve your request immediately, though the process could also take several days to complete. Once the request has been reviewed, you’ll receive an update in the form of a letter or an email, at which point you will receive an answer as to whether or not your request for a credit line increase was approved.
How many times can I ask for a credit line increase?
A credit line increase can be very valuable, but there’s a limit on the number of times you can request one. Depending on the issuer, you can request a higher credit limit every four to six months, but it’s best to wait at least six months from when you opened an account or requested your last increase.
What to know about credit line increases
Most lenders will review a customer’s credit profile when they submit a credit line increase request. As part of the process, the issuer will conduct a hard inquiry, which involves obtaining a copy of the customer’s credit report.
A hard inquiry will likely affect an individual’s credit score since credit scoring models consider how frequently, as well as how recently, someone has applied for increased credit limits. If you don’t track your financial habits, a credit limit increase can give you a false sense of financial security.
This may tempt you into habitually overspending. However, it’s essential to remember that overspending combined with high-interest rates and minimum payments will cause you to accrue far more debt than is reasonable, so be mindful of this.
Increase your credit line today
In today’s digital world, requesting a credit line increase is a hassle-free process that can be completed online or over the phone. When applying for a credit line increase, you will need to demonstrate your creditworthiness.
Figuring out the best products for the sake of saving and borrowing is the first step to managing credit well. Doing so can also increase your chances of success when you eventually apply for a credit line increase.
Do credit cards automatically increase your credit line?
Yes, some credit card issuers automatically increase customers’ credit limits when they have a consistent payment history or when their income increases. Credit card companies typically review customer accounts every six to 12 months, and they can offer their customers an increase as a result of these reviews.
What is a high credit limit?
Generally speaking, credit cards with high limits come with a credit limit between $5,000 and $10,000. The credit limit will often be even higher if you have an excellent credit rating.
What should your credit limit be?
Your credit ranking, debt-to-income ratio and credit utilization rate will determine your credit limit. With an excellent credit profile, you can obtain a credit limit between $5,000 and $50,000 or more.