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 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.
For instance, the issuer will assess your credit history, whether you pay in time and your income status. Sometimes, if all these are good, your credit limit may be increased automatically. Learn more below.
What Is Credit Limit?
Credit limit is the maximum amount your credit card issuer extends to you on a single credit card account. You are to use less than your credit limit, but truth be told, sometimes you might meet or even exceed the limit.
Depending on your credit card issuer, different things happen; your issuer may decline the transaction or accept it but charge you an over-limit fee that can vary from $25 the first time to $35 if you exceed the limit again within six months.
A card issuer charges you an over-limit fee because you accepted it while signing for your card. Therefore, read everything pertaining to your card before signing. Other consequences that come due to exceeding your credit limit include the card issuer decreasing your limit further if you repeat it.
This means you pay the amount spent over the limit plus the minimum payment which ultimately increases the required payment.
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 increment.
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. 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 your credit utilization below 30%. Low credit utilization portrays to creditors that you can manage credit responsibly.
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 leading to debts. 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 for a card limit increase, it may do a hard inquiry to ascertain your eligibility which affects your credit scores. A hard inquiry due to a credit limit increase request is part of the process of applying for additional or new credit.
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 and the effects can vary depending on the rest of your credit. For example, if your credit history is short, a hard inquiry may affect you more than one with a good/long credit history.
Gather the Documents You Need
Your credit card issuer will ask you for various documents that show your employment, current annual income and your monthly housing payment. Before you make that call, gather those documents so you can answer any associated questions. However, these documents will help more when you apply for a credit card increase on the issuer’s website.
State Your Case
When you make that call, stick to the basics. Prepare your talking points like why you need the increment and how much.
Also, prepare the questions you need your creditor to answer, for instance, will you get a hard inquiry on your reports? Can you ask for more credit card increment in future? Then, don’t lose your cool in case things don’t go your way.
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.