What is a credit limit?
Your credit limit is the maximum amount that you can spend on an overdraft or a credit card. When you apply for a new credit card, it is unlikely that you will be informed of its credit limit, but when you receive it, you will then be notified. This lack of information can cause a number of problems regarding transferring your existing balance in case your credit limit is too low to permit it. It is therefore essential that before you apply for a credit card and sign a credit agreement, you ask your card provider what your credit limit is.
Your provider should then be able to offer you an approximation of how high your credit limit is likely to be. Before this, however, they may need to make sure that you are eligible for the credit card by doing a credit check beforehand to ensure that you are able to afford to repay the credit limit amount. If you are merely browsing for a suitable credit card and you’re not yet prepared to apply, inform the credit provider so that your credit file is not left with a mark or use a comparison site with a suitable ‘soft-search’ such as this one at Moneysupermarket.com
How to increase your credit limit
If you’re interested in increasing your credit limit, it is important to determine if you are doing it for the right reasons. If you want to increase your credit limit so that you can treat yourself to expensive items that you wouldn’t normally be able to afford without a credit card, this is a sure-fire way to get your application rejected and generally a bad idea.
In order to get approved for a credit limit increase, you need to prove to your bank that you are responsible with your credit usage. If you make your payments on time without missing any in the past 6 months and your cards aren’t maxed out, this will stand you in good stead for getting approved.
If you are in fact a sensible credit card user, there are a number of ways that you can increase your credit limit.
Apply for a new card
Applying for a new credit card with a higher limit is often the most straightforward way to increase your credit limit, as each card can have a different credit limit depending on its target customers.
It’s easy to choose a new credit card provider and apply for a card, but if you’d like to remain with your current credit card company, you can always apply for a new card with them and transfer a part of your new credit line to your original card. This is only possible if your credit score is above average, but if it is, you can expect a significant increase.
Request an increase for an existing card
If you have a card that you’d like to request an increase on, your credit card provider will review your credit history to ensure that you’re worthy of an increase. This review will be noted on your credit report and can impact your credit score, so make sure that you only request an increase on one card, otherwise, you could run into trouble. In addition to this, other providers will be able to see that you are having your score reviewed which can make you look less financially stable and can affect your chances of getting approved.
Of course, the same is true the other way around – if you have other debts or have applied for too many other forms of credit such as an emergency loan or other personal loan, then these searches will also show on your credit report and may hinder your chances of getting your credit card limit increased.
Don’t request too much of an increase
Applying for an unreasonably high increase can put credit card providers off and can lengthen the application process by a few months. It’s sensible to expect a 10-25% increase, but don’t ask your provider how much they think you should request as they are prohibited from giving this advice to customers.
A 10-25% increase is not set in stone, however, if you have a good credit history, it is possible for you to receive a significantly higher increase and providers will review you on a case-by-case basis. If you do receive a significant increase, however, it’s important to remain practical with how much you spend and not get carried away.
Your credit provider will review your account every 6 months on average, so it is possible for your credit limit to increase naturally. If you make your payments on time and, on occasion, pay the monthly balance in full, you may receive periodical limit hikes. Patience is a virtue!
The key to receiving a credit limit increase is to be responsible with your credit, so make sure that you keep on top of your spending, no matter how tempting it may be to go overboard!
For more on the pros and cons of increasing your credit limit and further advice, visit the Money Advice Service’s page here – https://www.moneyadviceservice.org.uk/en/articles/ways-to-increase-your-credit-limit