A credit limit is the maximum amount of debt that your bank will allow you to charge on your credit card within your predefined billing period.
A credit line is a wonderful tool that the financial world has created to enable individuals to get access to funds with the obligation to repay, usually together with an interest.
However, not all customers are entitled to the same credit limit, depending on a number of factors such as your level of income, credit history and the type of credit card.
Pros And Cons Of Increasing Your Credit Limit
Boosting your credit limit may be a wise decision given the following reasons:
- Unplanned expenditures. Some people are prone to experiencing unanticipated expenditures, which can be unpleasant at times, especially if you are short of funds at the time. Whether it be a birthday gift you have to buy or you really don’t want to miss that vacation with friends, which was decided two days ago, you will surely benefit from a nice credit line.
- Short borrowing windows. This is something we have all encountered in our lives. Imagine you are to receive your pay tomorrow, but you need to pay for something today. Would you take out a loan from the bank? No, right? It takes too long, and nobody would really do that. You can borrow some money from your friends and family, but this won’t always work for you. Meanwhile, credit lines are very quick and helpful in these case scenarios. And, with your growing amount of expenses, if your credit limit is high enough, it will enable you to cover these short borrowing windows.
- Increasing income and expenses. This is the most logical reason as to why you should increase your credit limit. As you experience a greater circulation of money in your accounts, the scales increase as well. More expenses mean you may eventually need that higher credit limit and more income means you can proportionately manage to repay the increased debt.
Considerations before your final decision:
It is tempting enough to know that you have a beautiful sum of money ready for you to be withdrawn at any time at your convenience.
Nevertheless, you can never be too sure about your decisions when it comes to money and spending. Availability of funds very much invites spending, and this will usually lead to overspending.
Given the high interest rates of credit card debts, overspending may lead to serious financial problems, which is something you would want to avoid. If you have used your limit, then that’s it, you have set a new deadline upon yourself, which you can’t afford to miss. And if you do happen to miss, you will jeopardize your creditworthiness.
This is not to discourage you from taking debt, but to help you think and make sure that the amount of your credit limit makes sense for you and your income level.
This is what credit card issuers look into when they decide whether to extend your credit limit:
This is the number one factor that any financial institution would consider in determining whether to lend any money to an individual. You may have a constant stream of income, but it does not guarantee that you will pay on time, whereas your creditworthiness gives a very good idea of how responsible you are. If you have been paying your prior debts before deadlines, then there is a good chance that the card issuer will increase your credit limit.
Your income level
As much as your history of paying before deadlines is crucial, you still need to have enough funds to make those payments. If the bank feels that a particular level of income may not suffice to satisfy the increase in a credit line, this will surely be a huge red flag.
This is a metric that shows how much of your credit limit you are using. So, if your credit limit is $1,000 and you take a credit of $500, then your utilization rate is 50%. You should aim to keep this below 30% if you want to have the green light from this perspective of the bank’s decision making. In essence, a low utilization rate means that you are not too dependent on debt and can, therefore, manage it.
Debt to income ratio
This is another measure of your ability to manage debt. As the name suggests, this ratio is calculated by dividing the amount of debt you are holding to your gross income. Banks require that you keep this ratio below 40%. Banks will use this to determine if the amount of your debt is fair against your level of income. So, keep this in mind as you decide to call on debt to solve your financial issues.
Type of credit card
Yes, that’s right! Not all cards are created equal. Different types of credit cards inherently provide different credit limits. The best examples of these cards are the Visa Signature and Mastercard World Elite.
Of course, if you opt for a card with an annual high service fee, it will bring you some advantages, one of which is a higher credit limit.
Know Where Your Credit Score Stands
Your credit score is the number one standardized information for your credit card company about whether they should trust you or not. Maintaining a good credit score is the first thing you should do if you want to increase your credit limit.
Personal credit scores range from 300 to 850, and you should aim to have at least 700 points.
You can check your personal credit score online through Nav. All you need to provide your personal information such as your social security number, name, date of birth, and other personal info.
Note that this kind of check will count as a soft check and will not affect your credit score or become visible to your future creditors.
Here are some tips about how to increase your credit limit in a U.S. Bank:
Use the bank website
In a digitalized world like this, financial institutions, just like other commercial businesses, offer services online. So why not use this easy method to apply for your credit limit increase.
Fill in all required fields in the form carefully and make sure not to forget that someone is going to review the information you filled in.
This means you will really need to demonstrate why you should be given what you want.
Give your card company a call
This is also quite simple and has a great advantage attached to it. If you are good at leading persuasive talks, then this is the way to go about it. Make sure to mention all your merits to convince them that increasing your credit limit really makes sense.
Wait for 6 months
Most credit card companies and banks require 6 months of membership until you can physically apply for a credit limit increase. So, don’t rush to avoid being rejected for this reason.
Apply for a new card
You can either apply for a new card with your current card issuer or with a new one. This time you can apply for a card with a credit limit that you are comfortable with.
But remember again that not all credit cards are created equal, so explore your new card’s features in order to be aware of what you are applying for.
Transfer your credit limit
In some instances, it is possible to transfer your credit limit from one card to another. So, if your attempts to increase your credit limit on one particular card does not work out, this is another strategy to play with your credit limit.
You can even issue a new card with the same provider and transfer your new card’s credit limit to another card. Just contact your provider’s customer service and ask for the transfer.
Don’t go greedy
When applying for a credit limit increase, avoid asking too much of it. Remember, you can gradually increase it over time as your creditworthiness and income level improve.
A greedy attitude will not be appreciated by the bank and believe me, they can smell it from miles away. Take it slow and you will get what you want.
What To Expect During The Phone Call?
If you opt to request your credit limit increase over the phone, you should be well prepared. Have your personal information ready to be called out as you will be asked by the company representative.
These are the likely pieces of information you will be asked:
- Social security number/account number or some other personal information to identify you
- Monthly/annual gross income
- Current mortgage payments or rent
- The amount by which you wish to increase your credit limit
This is the standard information you will be asked, but more importantly, you will be questioned about your motives for increasing your credit limit. Give them an answer that will also make sense from their perspective.
You don't need to mention the very personal specific reason, but explain them in general terms that you anticipate new or increased expenditures that give you the need to increase your credit limit.
Also, prepare a self-praising speech to convince them you can handle it. Bring up your timely payments or increase of income to demonstrate that you can repay your debts.
Bear in mind that the credit card issuer does not have any obligation to approve your request even if you fulfill the requirements.
It's all about their final judgment. So, it's usually wise to be courteous during these calls and not insist on any issue for too long.
Now that you are well aware of all considerations around this topic, it’s time to get familiar with the specifics of each credit card issuer.
Beware that most card issuers use hard inquiry before extending your credit limit. A hard inquiry is when a lender or credit card issuer checks your credit history before making their lending decision.
Note that every time you undergo a hard inquiry, your credit score will lose a few points, not much too affect you really, but try not to apply for too many credit cards at the same time, otherwise this many hard inquires will deteriorate your credit score.
- You must wait for at least 60 days to apply for a credit limit increase
- You can expect a hard inquiry from this credit card issuer
- The decision is usually made within 7 to 10 days
- You must wait for another 180 days if you want to apply for another credit limit increase
- Bank of America requires you to be their customer for at least 6 months before you request a credit limit increase
- Depending on the amount of the increase, you will either get a soft or hard inquiry
- You can make your request online on their website
- You can apply online and usually get a decision within a short time frame
- This credit card issuer periodically reviews your credit account in order to determine whether you can extend your credit limit or not
- If your request is declined, Barclays may offer you a smaller increase than what you have requested
- After you have got a favorable decision, you must wait for at least 4 months to send another credit limit increase request
- Some of the credit cards of this issuer will automatically increase your credit limit once you made your first 5 payments on a timely manner
- The decision usually arrives within 10 business days
- You can apply for a credit limit increase any time with this issuer, but note that they will generally decline your request if your account has been open for less than 6 months
- This bank may upgrade your credit limit periodically
- As you apply for the increase, you will either be approved within a short period of time or you will be sent for a manual review
- The manual review will require you to provide with your financial information, and a hard credit inquiry should be expected
What Should I Do If My Credit Limit Increase Request Has Been Rejected?
If your credit limit increase request is denied, don't feel down. There are still ways to turn things around.
Here are some actions you can take to attain your goal:
- Review your denial letter – learn from your mistakes, see what went wrong, and observe your denial letter to better prepare yourself for the next credit limit increase request.
- Improve your ratios – we are now familiar with 2 important ratios (utilization ratio and debt to income ratio). Pay off some outstanding debt and improve your ratios to have a better-looking application.
- Issue a new card – with so many credit card issuing companies and card types around, you have a lot of flexibility to choose a better card for you with a higher credit limit or with more relaxed requirements to request the credit limit increase.
After you have received your credit limit increase
Once you have reached your goal, let’s not forget that you have changed your financial background and there are new responsibilities to think about.
Plan ahead – set yourself a limit for monthly debt, you don’t need to be using all of your limit. It’s there to be available in case you really need it and not to be used recklessly. Remember that you still need to think about your utilization rate.
Maintain your creditworthiness – now you have access to more debt you can take, but you should also assume the augmented responsibility. You will probably make repayments of higher amounts, but you don't want to risk your credit history.
Sometimes when we achieve something, we tend to forget that one day we may want to build on our achievement. In more simple words, you may wish to apply for another credit limit increase in the future, which will depend on how you have managed your current increase.
Having gathered certain knowledge about how to increase your credit limit, it is essential to understand whether there is a genuine need to do it. You should aim to take advantage of its benefits rather than accumulate problems for yourself. Assess your financial reality and make a good analysis of the potential outcomes.
When it comes to making the request, there are two golden rules to remember. First and foremost, provide all information correctly and accurately. Secondly, use all of your innocence to persuade.
At the end of the day, it comes down to whether the company you are applying to trusts you or not.
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