Your credit limit plays a bigger role in your financial life than just allowing you to spend more when you use your credit card. Yes, getting a higher credit limit can allow you to borrow large sums of money, but it can also boost your credit rating if you know how to use a raise to your advantage.
Applying for a credit increase is pretty straightforward, so let’s take a look at how to increase credit limits and what are the benefits of increasing your credit limit.
How to increase the credit limit on your credit card
The process for getting a higher credit limit is fairly straightforward and you have three options for pursuing a credit limit increase. You can apply for a credit limit increase online, over the phone, or through a lender invitation.
Typically, you can quickly apply for a credit limit increase through an online banking or credit account. The menu should have an option like “Increase Credit Limit” or “Increase Credit Limit” which prompts you to provide personal financial information that the lender will use to assess whether a credit limit increase is right for you. You may need to share updated information about your monthly housing income or expenses. They may ask you how much additional credit you’re looking for, so you’ll want to have a number in mind before you apply.
While some lenders will grant a credit limit increase without performing a serious investigation that may affect your credit score, others may go to great lengths to approve your credit limit increase. The lender should let you know in advance if they will make a significant effort, so that you can decide whether you want to continue or not know that there will be a temporary impact on your credit score.
You can also call your credit card customer service number and request a credit limit increase over the phone. Like when you apply online, you will need to provide the same basic information about your financial life.
Sometimes a credit card issuer will contact you about a potential credit limit increase without you having to apply for one. Lenders regularly ask cardholders to increase their credit limit, so keep an eye out for an email or online account message asking if you’d be interested in additional credit. You can even receive a pre-approved offer without having to apply or provide your current financial information.
Benefits of a higher credit limit
Getting your hands on a higher credit limit can be a very good step to take if you are looking to improve your credit score.
Better use of credit
Five different factors are taken into consideration in determining your FICO credit score. One of the most important factors is your credit utilization rate, which is 30% of your score and represents the amount of credit you have versus the amount of credit you currently use. For example, if you have $ 10,000 of available credit and you have a balance of $ 2,500, your credit utilization rate is 25%. This is a good ratio because you want to keep your credit utilization rate below 30% as much as possible. This is where an increase in the credit limit comes in. It is much easier to keep your credit utilization rate low if you have a higher credit limit.
More purchasing power
A higher credit limit also gives you more purchasing power, but take a little step forward here because the higher your credit card balance, the lower your credit utilization rate will be. However, if you can pay for your purchases immediately, having a higher credit limit allows you to spend more with your card, which in turn earns you more rewards for cardholders.
Better conditions in the future
An added benefit of increasing your credit limit and achieving a higher credit score at the same time is that you can actually improve your borrowing terms in the future. The higher your credit score, the better the terms and the lower interest rates you are likely to be entitled to in the future. Figuring out how to increase credit card limits now can save you money when applying for a new credit card or a mortgage or car loan.
What Improves Your Chances Of Getting Approved For More Credit?
If you decide that a credit limit increase is right for you, you will need to understand how to increase a credit limit. The main thing that you need to focus on is making sure that your credit habits reassure lenders that you will be able to pay off your credit cards on time.
Before approving a credit limit increase, issuers usually want to know how much you’re making and how much you’re spending on rent or mortgage payments. This is because they have to assess whether or not you are struggling to make ends meet, which would reduce the chances of making timely payments.
Issuers also look at account behavior, payment history and overall usage levels, as well as how long your account has been open and how you’ve managed it so far. Card companies want to be sure that you will repay any money you borrow, based on your current income, assets, and obligations.
Some lenders also consider your age, perhaps because they view experienced credit holders as more experienced in handling the liability of an increased line of credit.
How is your credit limit determined?
Your credit limit is determined in two ways. The credit card may have a predefined credit limit or the lender may offer you a credit limit based on your credit history and credit score. It is in the latter case that having a solid credit history really helps.
Whenever you apply for a new line of credit, lenders will consider how you used your past credit opportunities before deciding whether to give you the line of credit you requested, how much credit to offer, and the type of interest rate you’ll receive.
This is another reason why it is a good idea for you to ask for a credit limit increase because future lenders may take your current credit limits into account when determining what credit limit to offer. By showing them that you’ve successfully managed an increased credit limit without maximizing your cards or falling behind on payments, you’ll be more likely to get better terms and better interest rates.
If you think you can take on the added responsibility of a higher credit limit, ask for one. You can benefit greatly from this wise money movement.