At Credit Sudhaar, while we keep coming up with loads of queries from people across the vintage of holding credit cards, query pertaining to the credit limit keeps coming up in different formats and shapes. What most of card holders do not understand is that the limit on their credit cards play an important role in their credit health and credit profile. So they have to be cognizant of the limits being enjoyed by them and should opt for increase in the limits if required.
Why and how should they do it is given below. So read on to know about the impact of increased credit limit on your credit cards.
Question : What should be my credit limit?
The credit limit gets assigned to you based on the repayment capacity and the credit profile. Just like any other credit instrument or a loan, the underwriter reviews the application and assigns the limit based on these two important factors.
However, it does not mean that you need to limit yourself with the limit prescribed by the bank. You can ask for an increase any point of time if desired. An if the bank is ready to comply with the request then it is advisable to go ahead with it.
Question : Why should I ask for an increase?
You should ask for an increase in limit since it will have two fold benefit. First, it will help you have increased line of credit available to fall back upon when you are in the need. This is kind of a loan already available with you and can be utilized across the globe in case of an exigency.
Secondly and more importantly, it helps to bring down the credit utilization ratio that will have positive impact on your credit score.
Question : How will an increased credit limit impact my CIBIL score positively?
Credit utilization (available credit and actual utilization) impacts to the extent of 30% in your score calculation. The ration on overall amount of outstanding on your credit cards against the given limit is an important factor in calculating the credit utilization. The closer you get to the credit limit the chances of getting a low CIBIL score increase. An increased limit will only bring your utilization down and thus will start impacting the credit score positively.
Question : When should I ask for an increase in credit limit?
Ask for it if you can get it maybe the approach that many would follow. But this may not be the right strategy. You should only ask for it if you have the capacity of repaying it. In the absence of the capacity to repay, if the limit gets utilized, you would find yourself in a difficult situation and it may lead you fall in debt trap.
This could be the worst thing to be happening to you. So you need to be very careful on understanding your own repayment capacity before you put up the request for increase in your limit of credit.
Question : Will the issuer run an inquiry on credit bureau again?
While all on new applications the credit card companies run an inquiry on credit bureau, it may not be the case when an increased credit limit is request. This could be on account of the length of relationship that you have had with them and the repayment patterns on your credit cards. If the relationship has some vintage and there has not been a default then the bank may just increase the limit without hitting the bureau inquiry. In some cases, they may not even ask for the current income documents to look at such requests.
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