Your credit score indicates to your lenders whether you will be a credit risk or if you can repay your loans. There are several ways to lift or reduce that score. You can even request to increase your credit limit if you have a good credit score. An increased limit can mean many things for you, both good and bad. But it has its benefits & adversaries. Here’s a detailed account of how you can raise your credit limit and if it will affect your credit score.
What is a credit limit?
A credit limit is the maximum pre-decided limit of money you can borrow on your credit line. If you use up all the money, you can’t borrow more from that credit account unless you have already repaid the entire borrowed amount first. Under exceptional circumstances, creditors can increase your credit limit on their own accord, but these are rare. One more way to shoot up your credit score is to submit a request to your lender to increase your credit limit.
How to increase your credit limit?
If you wish to bring up your credit limit, make a point to use your line of credit wisely. Boosting your credit limit requires more financial discipline and careful planning. Here are some strategic ways to help you raise your credit limit:
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Make timely repayments
Repayments affect your credit score the most. If you make late repayments or have been missing the dates altogether, it can damage your credit score. A low credit score means your chances of getting your limit increase requests are low, if not non-existence.
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Don’t use up the entire limit on your credit card
A credit card should be a necessity that helps you out during emergencies. Your credit score will be affected if you have been maxing out on your credit card repeatedly. Ideally, using 30%-40% of your credit limit from the total available credit limit is considered ideal credit utilization. It shows you aren’t entirely dependent on your credit card and can repay all your installments.
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Try to pay off your existing loans
Having fewer on your credit report while you request a credit limit increase is the best way to get it approved promptly. If you have any personal loans, home loans, or other lines of credit, it’s best to repay as many of them as possible before you request an increase in your credit limit.
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Stable proof of income
Your income is the most essential factor in deciding whether the lending agency will approve your credit or loan request. If you have a stable income, attach a copy of income proof with your request to increase your credit limit. Hence, you should provide such proof of income by yourself the first time you submit the request to increase your credit limit.
How does a credit limit increase affect your credit score?
Increasing your credit limit can have an adverse impact on lenders in the future when you apply for another loan. If you haven’t closed your credit account yet, and are applying for another loan, you may appear as a high-risk taker to your lenders. This could result in your loan request getting denied.
A higher credit limit also means your repayments and interests will be high. If you can’t make the repayments on time, it will affect your credit score.
Conclusion
If you are someone who won’t succumb to the temptation of using up the entire credit limit on your credit card, then an increased credit limit can be beneficial for you. However, a credit limit increase also has their pros and cons. So, you should check the benefits before submitting a request to increase your credit limit.