Credit card limit not sufficient? 5 ways to increase funds available to you

Credit Utilisation Ratio (CUR) and your credit limit

The Credit Utilisation Ratio or CUR is a key aspect of credit card usage and represents the percentage of credit you are using from your total available credit. CUR is calculated by dividing your total credit card balances by your total credit card limits. Ideally, your credit utilisation ratio should be under 30 per cent. A lower ratio reflects you as a financially responsible credit user and can positively impact your credit score.

For instance, your revolving total credit limit is Rs. 1,00,000, out of which you typically spend Rs. 50,000/month. Your credit utilisation in this case is 50 per cent which may be detrimental to your credit health.

However, if you increase your credit limit to Rs. 2,00,000, your utilisation ratio will drop to 25 per cent. This drop in CUR can improve your credit health. A lower utilisation hints at a lower reliance on credit and can lead to an improved credit score which can fetch you lower interest rates on loans.

How to Increase Your Credit Limit

There are various ways in which you can increase your credit limit. Let’s look what some of these are:

1. Use your credit card responsibly

Using your credit card responsibly by keeping a low CUR and paying bills on time, among other thing, can help you build a case for an increase in limit.

2. Ask the issuer to increase the limit

Request your card issuer directly to raise the credit limit. For this, you may have provide details about your income and employment. If your income has significantly increased since you applied for your current card, present your current salary slip to the issuer or bank and request them to review your credit limit.

3. Get another card offering a high limit

If your current card issuer is not willing to increase your credit limit, explore getting another credit card offering a high limit. However, be cautious about opening multiple new credit card accounts, for it can negatively impact your credit score.

4. Demonstrate financial discipline with timely repayments

A credit card can help you build a credit history. Use your card frequently but responsibly and pay off your outstanding balance in full, on time. By doing this, you can exhibit yourself as a disciplined and responsible credit user which can potentially lead to your issuer increasing your limit over time. Card issuers typically favour customers who frequently use their cards for transactions while consistently repaying their dues.

5. Automatic increase

Sometimes card issuers review your accounts and increase the credit limit automatically. This is especially seen in case of cardholders who regularly make timely payments and manage their credit responsibly.

Benefits of a higher credit limit

A higher credit limit comes with many advantages. It increases your purchasing power by allowing you to make higher-value purchases without straining your finances. A higher credit limit can also be a safety net during emergencies.

For instance, you have an emergency medical expense of Rs. 1,50,000 but your card has a maximum limit of Rs. 1,00,000, in which case it may be a challenge to cover the shortfall in funds. However, if your card limit was Rs. 2,00,000, the same situation would be easier to handle, for your credit limit will allow you to cover the entire cost, without undue financial or mental stress.

Finally

Increasing your credit limit can not only boost your financial flexibility but also help in improving your credit health. However, assess your financial situation and ability to service higher credit card balances before you get the limit increased. If you are working on financial discipline and budgeting, avoid increasing your limit just yet. Also, if you use your credit card infrequently, there may be little benefit in increasing the limit.

Writer is CEO of BankBazaar.com