What are the benefits of increasing your credit card limit?

Credit cards can help mitigate financial challenges. You can use your credit card to pay electricity bills, buy groceries, and shop for new phones and laptops. You can also convert your transactions into easy EMIs, reducing the repayment burden. However, you must ensure that you do not exhaust your credit limit.

Using your available credit limit can affect your credit score and your probability of getting credit in the future. If you cannot reduce your credit card usage, you can apply to increase your credit card limit. Here is how it works.

What is a credit card limit?

Whenever a bank or a lender provides a line of credit or a credit card, they set a limit for the same. The limit is the maximum amount of credit you can avail yourself of through the card. Whenever you use the credit card for a purchase, the available credit limit will decrease, and the limit is restored whenever you make payment.

For example, if the credit limit is ₹1 lakh and you purchased something for ₹20,000, assuming there is no additional interest, your remaining credit limit will be ₹80,000. When you pay back the ₹20,000, the limit is restored. Still, the maximum amount you can loan remains ₹1 lakh, which will be your credit limit.

What is a credit card limit increase?

Increasing the credit limit is nothing but increasing the available line of credit. Lenders may increase the credit card limit basis your repayment behaviour. They may also increase credit limits basis changes in their policy structure or as per instructions given by the customer. If you have a secured credit card against an FD, increasing your FD deposit may also increase your credit card limit.

Should you accept the increase in your credit card limit?

There are multiple factors to consider before you accept an increased credit limit. Firstly, by agreeing to increase your credit limit, you agree to a higher risk. But if you think you can be cautious and have the means to pay back if you happen to use the credit, an increased credit limit can prove highly beneficial. It can relieve you when making large purchases that require hefty payments upfront.

But for those who are risk-averse or do not want the burden of incurring debt, a lower credit limit is the wise choice as it will allow greater control over spending habits.

How to increase your credit limit?

If you think you are eligible for a higher credit limit and the lender has not offered you a higher limit, you may contact them to see if an increase is possible. If you have a good credit score, substantial income and a long relationship with the lender, they will accept your request for an increase credit limit in most cases.

Caution is the key when it comes to credit limit increases. If you think you can spend with vigilance, an increased limit can help you in many ways. Above all, it can prove a brilliant source of an emergency fund.

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