When you get approved for a credit card, the issuer assigns a credit limit based on your credit rating, income and debt.
However, you might find that the amount assigned is not enough for your needs, especially if you are building credit or planning on using your card for a big purchase. If this is the case, you could request a credit limit increase.
In this article, we’ll share some tips on how to increase your credit card limit. We’ll also discuss the pros and cons of an enhanced credit limit so you can decide if this is the right decision for your financial needs.
How to Request a Credit Limit Increase
Even though the process to request a credit limit increase varies among credit card providers, the basic steps involved are the same.
Step 1: Get in touch with your credit card issuer
There are several ways you can contact your credit card issuer
Most credit card providers allow customers to request a credit limit increase through their online bank accounts. It is a simple and effective method—most banking apps and websites have a menu option to request a credit increase right from your account.
You might need to provide some information regarding your income, but in general, the process takes no more than a few clicks.
Fill out an application form
Some lenders also have online application forms on the website you can fill out or you can complete the form in one of the bank’s branch offices, whichever option is more convenient for you.
Alternatively, you can contact the credit card company directly by phone (the number is on the back of your credit card).
One of the advantages of speaking to your credit card provider in person is that they might be able to tell you instantly whether you’re approved for a limit increase. This is a good option if you need a credit increase urgently—a representative may collect all the information by phone which could speed up the process.
Step 2: Your application will be reviewed
The credit card company will review your request to check if you are eligible for an increase. They will look at your income, debt and credit score, so try and improve your credit rating before applying to boost your chances of getting approved. Also, make sure you check your credit report before you apply for a credit increase—there might be some incorrect information or fraudulent activity that could lower your credit score and result in a denied limit increase application.
Step 3: Your lender will notify you
Your lender should inform you of the outcome in two business days. If approved, they will also notify you of the new terms of your account. Requesting a credit limit increase doesn’t always lead to a new contract with your lender, although in some cases, the terms of the agreement may be renegotiated.
Bear in mind that your request may be denied or you may get approved for a lower sum than the one listed in your application.
The Benefits of a Credit Limit Increase
If you manage your credit responsibly, increasing your card’s limit can have quite a few upsides. Below you will find some of the biggest benefits of an enhanced credit limit.
1. More purchase power
A credit increase gives you more flexibility when paying with plastic. It is one of the fastest and most convenient ways to increase your spending power and is particularly useful for people who want to charge a big-ticket purchase on their credit card, such as a vehicle—normally your credit limit won’t be sufficient to pay for a car outright.
It is much simpler too—you won’t have to apply for a new credit card or personal loan and you will only have one bill to keep track of every month.
2. Boost your credit score
You may have heard the term credit utilization ratio. It is one of the metrics used to measure your credit score and it is calculated by dividing the amount of credit you are using by the amount of credit you have available.
Ideally, you should use less than 30% of your credit—anything over that will harm your credit score. A higher credit limit will reduce the percentage of funds used, i.e. lower your credit utilization ratio, and thus improve your credit rating—provided you are spending the same amount as before.
Here is an example: Say you have a $2,000 credit limit and you frequently owe more than $1,800 a month—this means your credit utilization ratio is 90%.
But if you were to increase your limit to $6,000 and still spend $1,800 a month, your credit utilization ratio would drop to 30%.
3. Helps you build credit
A credit increase is also useful to newcomers to the country who are still building their credit history or borrowers who are rebuilding their credit rating.
However, raising your credit limit to build credit is only useful if you repay your balance on time—otherwise, you might find yourself in more debt.
4. Can be used as an emergency fund
You may find yourself in emergencies where you need extra funds or situations where you can’t pay in cash. You could be travelling abroad and need an urgent plane ticket home. Or the bill for an unexpected home repair might be higher than what you have in your savings account. A higher credit limit can be a good resource in such situations.
At the same time, an increased credit limit can act as your emergency fund—financial planners advise having three to six months of savings for basic living expenses in case of a recession or job loss.
5. Help you earn rewards
A higher credit card limit allows you to charge more purchases on your credit card, thereby helping you earn extra points or cash back, as well as other benefits such as extended warranties and payment protection (both Mastercard and Visa offer these additional perks for their customers).
The Drawbacks of Increasing Your Credit Limit
Despite its benefits, requesting a higher credit card limit may not always be the best idea. These are some of the things to consider before applying for a credit limit increase.
1. You could get into more debt
Borrowers who are already struggling with various financial obligations may find that an increased credit limit pushes them into more credit card debt.
If you are not able to use the extra funds assigned to you responsibly and make monthly repayments, you should reconsider this option.
2. You could easily spend more than you can afford
It can be tempting to overspend when you have more funds at your disposal, but remember the golden rule and never charge anything on your credit card that you’re not able to pay for in cash.
If you’re using the credit limit increase for a specific purchase, stay within budget and have a strategy planned ahead on how to pay off the outstanding balance as quickly as possible.
3. Your credit score will take a hit
To determine whether you are eligible for a credit limit increase, the bank will run a hard credit check inquiry which will have a negative effect on your credit score.
Even though the impact of the hard inquiry can be offset with regular payments in the long run (plus a hard inquiry lowers your score by five to ten points only) a drop in your credit rating could make a huge difference, particularly if you are applying for another type of loan, such as a mortgage or HELOC. If so, it’s a better idea to apply for a loan first and then request a credit limit increase.
4. You could pay more in interest
Look at it this way: a 25% APR on a $1,000 balance is $0.70 a day in interest, while the same APR on a $10,000 balance is nearly $7 in interest a day.
What’s more, some credit companies might increase your interest rate if you are spending close to your credit limit, which could cause a serious dent in your monthly budget.
What to Do if Your Request for a Credit Limit Increase Was Denied?
Most banks or credit card companies will tell you why your request was denied so you can try and resolve the issue before you apply for an increase again.
These are the most common reasons why your application might be rejected and what you can do about it.
You have a limited credit history or your credit score is too low
Credit card issuers are not likely to approve a credit limit increase if you don’t have a history of timely payments and responsible usage.
To improve your chances of getting approved, try and establish a track record by regularly repaying your balance and avoiding charging more on your card than you can afford to repay.
Your income is too low
If your income is not sufficient to support the amount of credit, your lender might see you as too much of a risk and deny your request. This is usually the case if you are currently unemployed, working as a freelancer or if you are self-employed.
Try to add a little additional income to your budget by taking on some extra work or putting some of your savings into low-risk, high-return investments or high-interest savings accounts.
You don’t use your credit card enough
Credit card issuers are not likely to approve a limit increase for a cardholder who has been with them for less than a year. So, wait for at least 12 months between getting the card and requesting a higher credit limit.
Using your card frequently also improves the likelihood of getting approved for a credit increase.
Try an alternative to a credit increase
If you need extra funds you could always apply for a new credit card. Signing up for a new card may even get you some promotional benefits such as 0% introductory APR or a generous welcome bonus.
You could also try taking out a personal loan—these loans typically have lower interest rates than credit cards and will also help you diversify your credit mix, which in turn will improve your credit score.
Finally, if you have some equity in your home, you could apply for a HELOC or home equity loan and get a higher amount than a credit increase.
If the credit card issuer has not revealed the reason for the rejection, you can still take some steps to improve your creditworthiness such as
- Lowering your credit utilization ratio
- Paying off your existing balance (more than the minimum payment) when possible
- Settling all your bills on time (not just your credit card balance)
You could also try and learn more about how your credit score is calculated, so you can take more relevant measures to improve it.
An increase in your credit limit has some benefits, but for some, it could create more problems, particularly for cardholders who want to apply for other loans such as a mortgage or a line of credit.
If you can’t decide whether an increased credit limit is right for you, outweigh the pros and cons or consult a financial advisor who can give you professional advice tailored to your unique financial circumstances.
Luckily, should you go for a credit limit increase, the procedure is very straightforward—simply contact your lender or credit card issuer and wait for a response. To improve your chances, try boosting your overall creditworthiness by supplementing your income, settling your balance and paying your bills on time.
This is entirely up to you, but as a rule of thumb, these are the situations when you could benefit from a credit increase the most
- You have a big purchase coming up
- You want to earn more credit card rewards
- You don’t carry any balance on your credit cards
- You recently got a job promotion that has significantly increased your income
It’s not advisable to request a credit increase more than once a year. If you need access to credit urgently, wait at least four to six months, preferably a year, between requests. Cardholders whose application was denied should wait until they improve their creditworthiness and spending habits.
No, in Canada a credit card issuer can offer a credit increase, but they can never increase your limit without your explicit consent. If you are offered a credit limit increase, think long and hard before you accept it.
If you are not able to make monthly repayments on your credit card, an increase on your credit card limit is likely to push you into more debt.
In most cases, your purchase will be declined, which might leave you a huge bill and no way to pay for it. Sometimes, a charge can put you over the credit limit—this may lead to penalties from the credit card company or even a higher interest rate.
If you have gone over your limit, talk to a credit counsellor or look at debt consolidation options to try and get your spending under control.