When you apply for a credit card, your card issuer allows you a maximum amount that you can charge on a particular credit card account. This is called credit card limit.
Depending on the card issuer and their conditions, you may be penalized for exceeding your credit limit or they may just decline the transaction that exceeds the limit.
There are ways a credit limit can be increased. However, there are some factors your issuer considers before increasing your credit limit. Check out the following article to learn more about asking for a higher credit limit.
What Is Credit Limit?
Credit limit is the maximum amount your credit card issuer extends to you on a single credit card account. If you attempt to make a purchase using your card that goes over the credit limit, different outcomes may happen depending on your credit card issuer.
The outcomes include, your issuer declining the transaction altogether, or accepting it but charging you an over-limit fee that can vary from $25 to $35. The higher charge typically occurs if you exceed the limit a second time within a certain duration. Other consequences that come due to exceeding your credit limit include the card issuer decreasing your limit if you repeatedly go over limit.
On the flip side, your credit limit can be increased in some instances. For example, your card issuer may automatically increase it when you pay in time, have a good credit history and have a good income status. Other times, you might have to call your card issuer and ask for an increase.
Why Do You Need a Credit Limit Increase?
Before you call your card issuer to ask for a credit limit increase, first ask yourself why you need it. Assess your current financial status and how a credit card increase will affect you.
Decreased Credit Utilization
One of the benefits of a high credit card limit decreases your credit utilization rate only when you keep your balance in control. Credit utilization is the amount of available credit you use over your overall credit. It is recommended to always maintain a credit utilization rate of below 30%. Low credit utilization portrays to creditors that you can manage credit responsibly.
Increased Spending Risk
On the other hand, an increased card limit may tempt some people to spend more, because after all, there is more money. When you start opening more accounts with high credit limits this might lead you to spend irresponsibly and lead to further debt. Don’t forget that at the end of the day, you have to pay back this credit.
Know Your Credit History
You can ask to know your credit history online through different bureaus. When you call your card issuing company to ask for a card limit increase, the company may conduct a hard credit inquiry to determine your eligibility.
A hard inquiry due to a credit limit increase request is part of the process of applying for additional or new credit. This inquiry affects your credit score.
A hard inquiry stays on your credit reports for about two years and may affect your credit score for one or more years depending on the scoring model. For example, if your credit history is short, a hard inquiry may affect you more than someone with a long (and good) credit history.
Gather the Documents You Need
When applying for a credit increase, your credit card issuer will ask you for various documents that show your employment, current annual income and your monthly housing payment.
Before you call your issuer, gather those documents so you can answer any associated questions. Having these documents handy will also help you when applying for a credit card increase on the issuer’s website.
State Your Case
When you make the call, stick to the basics. Prepare your answers to questions about why you need the increment and how much.
Also, prepare questions you need your creditor to answer. For instance, will this application for an increase result in a hard inquiry on your credit report? Can you ask for another credit card increment in the future?
If you request for an increase is unsuccessful this time, consider factors such as your existing credit score, repayment consistency, and any current balances on other credit products you have. Strengthen these financial elements to improve your changes of receiving an increase next time.
In case you need a credit card limit increment, you can call your creditor and ask for it. Note that your credit card company will need to know your current financial status, credit history and how you generally manage credit.
When all these factors are good, sometimes the card issuer may automatically increase your credit limit while other times you have to call your card issuer and request an increase.