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Your credit limit determines how much credit your bank or credit union gives you access to. In essence, credit allows you to borrow money from your bank and pay it off each month. If you miss a payment due date, you need to pay interest on your borrowed amount.
Credit limits in Canada can range from $2000 to $ 500,000. You may want to increase your credit card limit if you have a big purchase coming up, or want to lower your credit utilization ratio (the ratio of available credit to used credit). Whatever the reason, in this article, we’ll guide you through the steps to give your credit limit a boost.
Why Is It Helpful To Increase Your Credit Limit?
There can be benefits to increasing your current credit limit. These include:
- Financial flexibility: Having a higher credit limit allows you to make large or unexpected purchases without worrying about maxing out your card. This makes it vital in an emergency.
- Positive impact on credit score: Since having a higher credit limit automatically lowers your credit utilization rate (percentage of credit used), it can positively impact your credit score.
- Helps you avoid penalties: If you have a higher credit limit, it’s much easier to stay within the limit and avoid maxing out your card. Exceeding your credit limit can lead to penalties.
If managed well, a higher credit limit can improve your financial situation and help you out in an emergency.
Factors That Determine Your Credit Card Limit
When you first got your credit card, it likely had an upper limit. This upper limit is based on your current financial situation. Things that determine this limit include:
- Credit Score: The higher your credit score, the higher your credit limit.
- Income: If you earn a high income, your credit limit will be higher.
- Employment history: If you show a history of consistent employment, you are
- likely to have a high credit limit.
While this can be disheartening news if you don’t earn a consistent or high income or are still building your credit score, there are still methods to increase your credit card limit. However, these methods will require time and patience.
How To Prepare For A Credit Card Limit Increase
Before contacting your bank and requesting a limit increase, it helps to be prepared. A long-term strategy to increase your credit card limit involves improving your overall “creditworthiness”. Creditworthiness measures your financial reliability and encompasses your credit score, income, and payment history.
- 1. Improve your credit score: First, it will help to build your credit score. You can achieve this by always paying your credit card bills before the due date and being consistent with the payments. Also, remember to keep your credit utilization as low as possible (under 30%).
- 2. Pay more than the minimum payment each month: This will help you get out of credit card debt if you currently carry a balance and slowly improve your credit score. It also demonstrates a capacity to handle a larger credit limit each month.
- 3. Establish a relationship with the credit card company: This means being a responsible credit card user, avoiding late payments, setting up automatic payments or reminders, and proving to your card company that they can trust you with more credit.
In short, improve your credit score by using your credit card for small purchases once a month and paying it off consistently. This will provide a reliable payment history and keep your credit utilization low while you build your score. If you struggle with a traditional credit card, using a secured credit card can help.
How To Request A Credit Card Limit Increase
Once you’ve prepared sufficiently and used your credit card responsibly for at least six months, you can request a limit increase:
- 1. Contact your credit card company: Call customer service or email your credit card issuer and ask about their limit increase requirements. Some companies offer an online form, while others may require you to call someone else.
2. Have the right information on hand: When you request a limit increase, make sure you can provide documents detailing your current income, employment status and any financial changes since you’ve obtained the card. It’s also helpful to have a specific reason for requesting the increase, such as planning a major purchase or consolidating debt.
Common Mistakes To Avoid When Requesting A Credit Card Limit Increase
While it’s important to be proactive in seeking a credit card limit increase, try to avoid the following mistakes:
- Applying while financially struggling: Lenders are unlikely to grant you a limit increase if you appear to be struggling financially or have been struggling to make your payments on time.
- Applying for multiple credit cards or loans simultaneously: If you apply for a card while seeking a limit increase, it can temporarily affect your credit score and make lenders extra cautious.
- Your credit score is too low: It can be useful to first enquire about the expected credit score for a limit increase before applying for one.
It helps to know which mistakes to avoid so you don’t set yourself up for failure before you even start the process of increasing your credit limit.
Tips On How To Manage A Higher Credit Limit
Once you’ve successfully increased your credit card limit, it’s important to manage it responsibly. Here are our tips:
- Avoid the temptation to overspend.
- Stick to your usual budget.
- Be diligent about timely payments.
- Pay more than the minimum payment whenever possible.
By managing your high credit card limit responsibly, you’ll continue to improve your credit score and maintain a positive relationship with your credit card company.
Final Thoughts
Overall, having a higher credit limit can help you manage your finances and improve your credit score by lowering your credit utilization rate. However, before applying for a limit increase, first try to demonstrate your creditworthiness through consistent and responsible credit card use. This increased creditworthiness will improve your chances of approval.
Remember, a higher credit card limit will likely be worth the time and effort you put in now, so be patient and reap the benefits!
