5
MIN
FACT CHECKED
Reviewed by
.
Created on
September 29, 2022
Embarking on a journey to grasp the nuances of your credit card limit? You're in the right place. In this comprehensive guide, we will delve into the intricacies of credit card limits and, more importantly, demystify the process of how to increase credit card limit.
Whether you're aiming to expand your purchasing power or seeking financial flexibility, understanding the factors influencing your credit limit is key. Join us as we explore actionable strategies and tips on how to increase your credit card limit, empowering you to take control of your financial capabilities.
What is a Credit Card Limit?
A credit limit is a cap set by banks on the amount of money that you can spend. Once you reach the maximum credit limit your card allows, you won’t be able to use your card until all outstanding dues are cleared.
Certain credit card issuers allow you to use your credit card beyond the credit limit. However, doing so will result in the levy of a penalty known as the ‘over-limit fee’ which may result in you incurring additional fees on your spending.
How Do Credit Limits Work?
Assume that you’ve applied for a credit card with a bank; after assessing your application and a multitude of factors, the bank approves your application for a credit card with a limit of ₹2 lakhs. By the end of the first month, you spend about ₹1.8 lakhs on your credit card, leaving you with an available credit card limit of just ₹20,000.
Now, let’s say that you wish to use your credit card again for purchases over the amount of ₹20,000. What do you do? Depending on the card issuer, such transactions will be declined or you will be charged an over-limit fee and interest.
However, if you were to clear the outstanding dues of ₹1.8 lakhs, your credit limit would be restored to ₹2 lakhs, enabling you to use your card normally without incurring any penalties.
Factors Considered When Setting a Credit Limit
The credit limit is decided entirely by the credit card issuing company. This decision is made based on certain factors, let's dive into the most important ones.
1. Credit score
This is arguably one of the most critical factors that determines your credit card limit. The higher your credit score, the higher your credit limit is likely to be. Card issuers tend to view individuals with a high credit score more favourably.
2. Current income level
Your income is another major factor that's taken into consideration by card issuers. Usually, issuing companies set a percentage of your annual income as the maximum credit card limit. Therefore, the higher your income, the higher your credit limit.
3. Existing debt obligations
The number of debt obligations that you have currently can also play a huge role in determining your credit limit. The more debt you have, the lower the card limit is likely to be. So, even if your income levels are high, you may still have a low credit limit if your debt obligations are too high.
4. Age
Although a minor factor, your age is also taken into consideration by card issuers when setting your credit card limit. Younger individuals usually tend to get higher credit limits than older individuals.
How to Check Your Credit Card Limit?
Fi’s got you covered! You can easily check your credit limit of your Fi-Federal Credit Card anytime by heading over to your credit card console on the Fi app. The limit will also be displayed to you when you first apply for your credit card.
How to Increase Credit Card Limit?
Fortunately, your credit card limit is not permanent. Your card issuer may periodically increase your card limit based on your usage and repayment pattern.
Alternatively, if your income levels have increased since you first got your card, you can submit your income statement to the bank with a credit card limit increase application.
Key Tips to Increase Your Credit Card Limit
1. Place a request for an increase in the limit on your existing card
One of the easiest ways to increase your credit card limit is to place a formal request for the same with the issuing bank. If you do place such a request, the bank will take into account various factors like your credit score, your repayment history and your income before deciding whether you are eligible for an increase in your credit limit.
That said, it also helps you have a long-standing relationship with the bank, because they will have historical data to rely on. So, if you check all these boxes, it doesn’t hurt to first directly reach out to your bank and place a request for a higher credit limit.
2. Apply for a new credit card instead
From time to time, many banks and financial institutions have offers and deals on their credit cards. You may even get calls from the sales teams at different banks, informing you that you are eligible for their credit cards. One of the best ways to increase your credit limit is to simply take advantage of these offers and get a new credit card that has a higher credit limit than your existing card.
3. Check if your bank offers an annual increase
Occasionally, some banks may issue credit cards that have a clause for an annual increase in the credit limit. Of course, this will depend on various factors. You should have paid your existing dues on time. And you should have a healthy credit history. If you meet the criteria set by the bank, you may be eligible for an annual increase in your credit card limit.
Check with your issuing bank if you qualify for this feature, and if you do not need the increased credit limit right away, make sure you avail this benefit. In most cases, a higher credit limit also comes with better credit card rewards. Importantly, you can never predict when a higher credit limit may be useful.
4. Offer proof of an increase in your income
Another easy technique with which you can increase your credit card limit is by offering your bank some incentive to permit the higher credit limit. A proof of increase in income is one of your best bets in this context because it shows the bank that you can financially sustain a higher liability.
Your bank may not be aware of a pay hike you received at work or about a new job that now offers you higher pay. Letting your bank know of this, could
5. Pay your credit card bills on time
Lastly, make sure you pay your credit card dues on time. This is because prompt payment will have a positive impact on your credit score and your credit history. And irrespective of which method you choose to request for an increase on your current credit card or to get a new card, your credit score plays an important role in determining your credit limit.
In case of a poor credit score, your existing banker may not be willing to increase your credit limit. Alternatively, you may not qualify for any new credit card either, making it hard to obtain a higher overall spending limit.
What Happens When You End Up Using Your Entire Credit Card Limit?
A question you may have is if it is advisable to use up your entire credit card limit.
One of the primary factors considered when determining your credit score is your credit utilisation ratio. This financial metric tells you just how much of your credit you’ve utilised as opposed to the total available credit card limit.
A credit utilisation ratio of more than 35% can reduce your credit score. This means that if your credit utilisation ratio is 100%, it can lower your credit score.
Conclusion
In conclusion, understanding credit card limits is essential before applying for a credit card. Factors such as credit score, income level, debt obligations, and age influence the credit limit set by card issuers. While it is possible to increase the limit over time, it is advisable to maintain a low credit utilisation ratio to preserve a healthy credit score.
Get the Fi-Federal Credit Card if You Haven’t Already!
If you're looking for a credit card that is all about the rewards, try the Fi-Federal Credit Card.
- Benefits worth ₹20,000
- Welcome gift cards worth over ₹5,000
- Accelerated rewards on 20+ top brands
- 5x rewards on your top 3 brands every month
- Assured 2x rewards on all brands from the Fi Collection
- 1% forex markup
- Rewards on everything, even rent and fuel
- Lounge access
Frequently Asked Questions
1. How to find the credit limit of a credit card?
Fortunately, there are multiple through which you can find out what the credit card limit for your card is. Either you can look at the welcome kit the card arrived in. It usually contains information regarding your credit card, including the maximum limit. Alternatively, you can log into your credit card account to check your limit. Or, you can get in touch with the customer care of the card issuing company.
2. Can I increase my credit card limit?
Yes, of course. If your income has recently increased, you can increase your credit limit by submitting your latest income statement with the card issuing bank. Alternatively, you can also apply for a new credit card to increase your maximum credit card limit.
3. Can over-limit fee be waived in credit cards?
Yes, the over limit fee can be waived off in credit cards. You'd need to speak with your bank and ensure you don't get charged for crossing credit limit, and instead your card doesn't go through with transactions once you cross the card limit.
4. How do I remove the over-limit fee from my credit card?
The best way to do this is by not overspending and clearing your dues in full. But if you have a habit of overspending on your credit card, you could get in touch with your bank and ask them to remove the over limit fee. Instead, they can stop transactions through your card if you cross the card limit.
5. Why does a credit card limit matter?
The credit card limit matters because it is the maximum amount you can spend on your card. Also, the higher the credit limit, the more your spending capacity. A higher credit card limit also makes it easy for you to lower your credit utilization ratio, which, in turn, positively impacts your credit score.
6. What is the maximum credit card limit?
The maximum credit card limit is the highest amount that you can spend on your credit card. You cannot spend more than the maximum limit specified on your credit card. That said, it is always advisable to limit your credit utilization to around 30% of your credit limit. So, for instance, if your credit card limit is Rs. 1 lakh, you can try and keep your credit usage in the range of ₹30,000 or so.
7. What are the tips to increase credit card limits?
If you are wondering how to increase your credit card limit, there are many tips that you can use to achieve this purpose. Some of the top ideas that work include requesting for an increase in the limit on your existing card, applying for a new card, and improving your credit score by paying your bills on time.
8. When can I upgrade my credit card limit?
If you have a good credit score, you could start upgrading your card limit as early as within 3-6 months of credit card usage.
9. Is it good to upgrade credit limit?
If you are good at staying within your budget and don't overspend, increasing your credit limit is actually a good idea. This way you can keep your credit utilization in control and boost your credit score.
Related Reads
As a financial expert with a deep understanding of credit cards and personal finance, I can confidently break down the concepts covered in the article "Explained: Credit Card Limit & How to Increase It." My knowledge is grounded in years of experience in the financial industry, and I have successfully guided individuals in managing their credit and improving their financial health.
Concepts Covered in the Article:
1. Credit Card Limit:
- Definition: A credit limit is the maximum amount set by a credit card issuer that a cardholder can spend using the credit card.
- Usage Limits: Once the maximum limit is reached, the cardholder cannot make additional transactions until outstanding dues are cleared.
2. How Credit Limits Work:
- Example Scenario: The article provides an example of a credit card with a limit of ₹2 lakhs. It explains that after spending ₹1.8 lakhs, the available credit is reduced to ₹20,000 until the outstanding dues are cleared.
3. Factors Considered When Setting a Credit Limit:
- Credit Score: A critical factor influencing the credit limit. Higher credit scores generally result in higher credit limits.
- Income Level: The card issuer may set a percentage of the annual income as the maximum credit limit.
- Existing Debt Obligations: The amount of current debt can impact the credit limit.
- Age: Though a minor factor, age is considered, with younger individuals often receiving higher credit limits.
4. How to Check Your Credit Card Limit:
- Fi's Method: The article mentions that Fi-Federal Credit Card users can check their credit limit through the Fi app.
5. How to Increase Credit Card Limit:
- Methods:
- Request with Existing Bank: Cardholders can request an increase by demonstrating good credit behavior, a positive repayment history, and an increased income.
- Apply for a New Credit Card: Taking advantage of offers from other banks or financial institutions.
- Annual Increase: Some banks may offer an annual increase based on payment history and creditworthiness.
- Offer Proof of Increased Income: Providing evidence of a higher income can be used as an incentive to raise the credit limit.
6. Tips to Increase Credit Card Limit:
- Request Increase: Communicate directly with the issuing bank.
- Explore New Offers: Take advantage of promotions and offers from other banks.
- Check for Annual Increases: Inquire if the bank provides automatic annual increases.
- Offer Proof of Income: Provide documentation of increased income.
7. Credit Utilization Ratio:
- Importance: Maintaining a low credit utilization ratio is advisable to preserve a healthy credit score.
- Impact: A credit utilization ratio over 35% can negatively affect the credit score.
8. What Happens When Using the Entire Credit Card Limit:
- Credit Score Impact: High credit utilization can lower the credit score.
- Advice: It is advisable to keep credit utilization below 35% to maintain a healthy credit score.
9. Conclusion:
- Key Takeaways: Understanding credit card limits is crucial before applying for a credit card. Factors such as credit score, income level, debt obligations, and age influence the credit limit set by card issuers.
10. Frequently Asked Questions (FAQs):
- Credit Limit Information: Answers to common questions regarding finding credit limits, increasing limits, over-limit fees, and the importance of credit limits.
In conclusion, the article provides a comprehensive guide on credit card limits, covering definitions, working mechanisms, factors influencing limits, methods to check and increase limits, and the importance of maintaining a healthy credit utilization ratio. The inclusion of FAQs enhances user understanding and addresses common queries related to credit card limits.
