Of all the things we must have heard about the credit card and the credit utilization ration, one thing is sure that we have to work very diligently in order to have the score in-line. It can be a case that you are a responsible payer. Whatever credit you use, you repay it on time. But, for the score to be maintained and getting it up, the credit utilization ratio plays an important role.
Let’s understand the credit utilization ratio for credit cards. This is the factor which always should be taken care of. The utilization ratio should never exceed beyond 40% of your actual credit limit. While talking about credit cards, the bureaus do not see how responsible are you in paying the amount you have already sent, but it’s on how much are you using. Let’s understand this by one of the real time experience.
Raj was a very sincere responsible guy. He belonged to a middle class family and they were the people who believed in hard work. Along with the regular job he also was doing few freelancing work so as to make his base stronger and get a loan approved for which he was planning. Someone gave him the advice of getting the credit card, using it and repaying it on timely bases so as to build and improve his credit score. After a few months, with a lot of excitement, he checked his credit score. To his surprise, his score was pathetic. Now, why did this happen? Inspite of making regular payments, why was his score low? The point here was the credit utilization ration. People told him to use credit cards but did not explain him on how much to use.
His credit card limit was of 50,000. He used 25,000-30,000 per month making all the payments via his card. But this turned into a nightmare. Using that amount was utilizing 50% – 60% of card limit. Which is a very wrong way. If the limit is 50,000 one should never exceed the spending beyond 20,000. But, what if your usage is more? How can one increase the credit card limit?
Here are few of the things which can be done.
With the existing card, apply for a new credit card which has higher limit than your current card. Do not close the old account or stop using it, for as, it is important to keep older accounts active as it is one of the factors of your credit score. But with the new card, you can have more available credit you can use for.
Suppose, the idea of taking a new card is not setting in your thought process, speak with your bank and ask them to increase your credit limit in the existing card. You can show them the existing record of how responsible you have been in making the previous month’s payment. And if your proposal is sensible, they will definitely do it.
While asking for the increase in limit of your credit card, don’t keep on bugging the bank with your proposal. Request your bank and wait till they respond. One thing what you can do is ask them once a month for the update but do not keep on shooting mails or messages if they have not sanctioned you application as yet.
While you ask for the increase in your credit limit, do not ask randomly anything. Be reasonable enough while asking that. Do not ask for 40% or 50% increase. If you ask like that, they will reject your application and do not increase anything.
If it’s been long that you are using your card responsibly, banks will automatically increase your credit limit. Be patient and wait for the auto-increase. That would work best!
While trying to increase the limit of your credit card for any reason, may it be because your requirement is more or because you want to improve the credit score and maintain the credit utilization ratio low, choose any of these things mentioned above or the combination of it for good results.
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