From time to time, you may receive a message or email from your bank stating that you qualify for an increase in your credit card’s credit limit. Some people who need a higher limit may accept the offer. Others may ignore the message, thinking that they are already using the credit card for less than the existing limit and therefore do not need it.
However, you should consider accepting credit limit enhancement offers when offered by the bank, as they have benefits. Let’s discuss what a credit limit enhancement is, its benefits, and how to get one if the bank doesn’t offer it.
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What is credit limit enhancement?
Most Credit cards have a defined credit limit. For example, you may have a credit card with a credit limit of Rs 500,000. This means that you can use the card for an amount up to Rs 500,000 in one billing cycle. Once the monthly bill is generated and you pay the entire outstanding balance, the entire credit limit is replenished.
When the bank offers to increase your current credit limit, it is called credit limit enhancement. For example, the bank offers to increase the current credit limit of Rs 1 lakh on your credit card to Rs 2.5 lakhs. The above is an example of credit limit enhancement.
Why does a bank grant a credit limit increase?
From time to time, banks send a communication through SMS, WhatsApp, email, app notification, etc., to customers about credit limit enhancement offers, based on their eligibility. These credit limit enhancement offers are sent by the bank to encourage customers to spend more with a higher credit limit. The more the customer uses the credit card, the more revenue the bank will earn. The enhancement is based on a number of factors, including previous payment history, increase in credit score, increase in income, previous spending pattern, etc.
Why should I accept credit limit enhancement offers?
When a bank sends you an offer to improve your credit card’s credit limit, you should consider accepting it, as it has some benefits, including:
Lower credit utilization rate: Credit utilization ratio measures the credit limit used out of the total available credit limit. For example, Diya has a credit card with a credit limit of Rs 1 lakh and she uses the card for transactions of Rs 60,000 in a billing cycle. In this case, Diya’s credit utilization ratio will be 60%.
Credit reporting companies (CICs) like CIBIL consider a credit utilization ratio of 30% or below as good and helps boost your credit score. A credit utilization ratio above 30% negatively impacts your credit score.
In the above example, let’s say the bank offers Diya an upgrade to her credit limit. The bank offers to increase the credit limit on her credit card to Rs 200,000. If Diya accepts the offer and continues to spend Rs 60,000 in a billing cycle, her credit utilization ratio will drop from the previous 60% to 30%. Therefore, with a higher credit limit, Diya’s credit utilization ratio will be lower, which will help increase her credit score.
Therefore, you should consider accepting credit limit enhancement offers on credit cards whenever the bank offers them. They help you reduce your credit utilization ratio and thus contribute to increasing your credit score.
Help apply for premium credit cards: From time to time, banks allow customers to upgrade their existing credit card to a higher-tier premium credit card based on requirements. One of the eligibility criteria for a card upgrade is that the credit limit of the existing credit card is equal to or more than the minimum credit limit of the premium credit card.
For example, a bank has a premium credit card, ABC. Customers with other credit cards with a minimum credit limit of Rs. 5 lakhs or more can upgrade to the ABC credit card, provided they meet other eligibility criteria. A customer, Gita, wants to upgrade her existing credit card XYZ with a credit limit of Rs. 4 lakhs to the ABC premium credit card. However, in this case, the bank will not allow Gita to upgrade because the credit limit of Rs. 4 lakhs on the existing credit card XYZ is less than the minimum credit limit requirement of Rs. 5 lakhs for the ABC premium credit card.
Suppose the bank offers Gita to increase the credit limit on her XYZ credit card from Rs 400,000 to Rs 500,000, and Gita accepts the offer. Now, with a credit limit of Rs 500,000, Gita can apply for an upgrade to the ABC premium credit card, provided she meets the other eligibility criteria.
Some banks will issue you their regular/premium credit card if you have a credit card from another bank with a higher credit limit. The new bank may match the credit limit of the existing bank’s credit card. The new credit card is issued based on the existing credit card and its credit limit.
Therefore, whenever the bank offers you a credit enhancement, consider accepting it if you plan to upgrade to premium cards from the same bank or from other banks.
Useful in cases of financial emergency: In case of a financial emergency, such as hospitalization or others, a credit card with a higher limit can be your lifesaver. During an emergency, once the payment is made with the credit card, it gives you time to look for alternatives to get money until the payment is due. The higher the credit card limit, the more financial protection it provides you during financial emergencies.
However, it is not recommended to rely on credit cards during a financial emergency. You should create and maintain a separate emergency fund with 3-12 months’ worth of expenses.
Where to look for credit limit improvement offers?
Whenever a credit limit increase offer is generated, you will receive a communication from the bank. However, if you have not received the communication, you can check the offer in your online banking or mobile app. You can go to the credit card tab/link and check the application or card management section. If you are eligible for a credit limit increase, the details will be displayed in this section.
For example, for HDFC Bankfollow the steps below.
Login to Online Banking 🡪 Cards 🡪 Credit Cards 🡪 Application 🡪 Credit Limit Increase
According to ICICI Bank website, if you are eligible, you can increase your credit limit by sending an SMS from your registered mobile number as follows.
You can also log in to your online banking or ICICI Bank app and check if you have any credit limit enhancement offers.
What should you do if the bank does not send a credit limit improvement offer?
In the previous section, we have discussed how banks send credit limit enhancement offers to customers from time to time. However, what if the bank has not sent you an offer for a long time and you are looking for one?
In such cases, you can contact the bank and request them to increase the credit limit on your credit card. For example, if you are an American Express credit card holder, you can call the customer service and request them to increase the credit limit on your card. If you meet the requirements, they will increase your credit limit. credit limit.
To improve your credit limit, you can attach a copy of your latest pay slips when contacting the bank’s customer service via email. Your salary may have increased recently, but your financial details may not be up to date with the bank. If you send your latest income details to the bank, it may be helpful in getting your credit limit improved.
To receive credit improvement offers from the bank periodically, you can follow these steps:
- Send your most recent income information to the bank every time you receive a pay raise.
- Always pay the full amount due on or before the due date.
- Maintain a low credit utilization rate of 30% or less.
- Work to improve your credit score.
Precautions with a higher credit limit
Now that you’ve secured a higher credit limit, you need to take some precautions. A higher credit limit can expose you to major fraud if your credit card details are hacked or if the card is lost, stolen, or falls into the wrong hands.
It is recommended that you set appropriate transaction limits on your credit card. For example, disable international transactions on your credit card. Enable them only when necessary. Similarly, you can disable domestic ATM transactions on your credit card. For other transactions, you can apply per-transaction or per-day limits. These limits will limit the financial damage if the card is hacked, stolen, lost, or falls into the wrong hands.
Increase in credit limit
We have discussed the benefits of credit limit enhancement such as reducing the credit utilization ratio, help in applying for premium credit cards, help in case of financial emergencies, etc. So, the next time the bank sends you a credit enhancement offer, consider accepting it. However, once you accept it, make sure to set the necessary transaction limits to protect your card from any misuse.
Gopal Gidwani is a freelance personal finance content writer with over 15 years of experience. You can contact him at LinkedIn.
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