In Canada, credit cards come with a pre-determined credit limit. Are you unsure what credit card limit means? The credit card limit is the maximum amount of funds you can use or borrow from the credit card issuer in a month. The credit card limit is decided by the credit card issuer and the user has no say in it. The credit card issuers determine the credit limit by assessing multiple factors. The good news is that the credit limit is not fixed for life and you can request the credit card issuer to increase your credit limit.
Wondering how it is done and what you need to do before applying for a credit card limit increase. Well, I got you covered. In this article, you will find all the information related to credit card limit increases. To start with, let us explore the factors that dictate the credit card limit in the first place to understand the efforts you need to make to increase that limit.
Factors that determine the credit card limit
There are multiple factors that the credit card issuer takes into account while determining the credit card limit. These factors include:
Credit Score: The first and foremost factor that is considered is the credit score. A credit score is a specific number that is assigned to each individual by the credit bureaus in Canada that depicts their creditworthiness. A credit score is derived from the credit history, responsible behavior in dealing with outstanding credit, and credit utilization. A high credit score implies that the individual has an attractive credit history and is considered a low default risk. This is why such users are offered high credit limits. The opposite is true for users with low credit scores.
Income level: Income is another major factor that helps the credit bureaus assess your creditworthiness and ascertain your credit card limit accordingly. Having a stable source of income is surely a huge plus than having a contractual or temporary income stream. The users with high-income levels are seen as low default risk which is why they are offered high credit limits because it is anticipated that they will return their outstanding debt without default. Such users have the required income to pay back the debt that they obtain against their credit cards.
Credit history: Your credit history shows your past pattern of paying off your debt. This surely gives useful insights to the credit bureau as they can check out how you have dealt with outstanding debt in the past. If your credit history shows a repeated behavior of missed payments or paying after the due date then it is considered as an irresponsible attitude which is not appreciated. The credit bureau takes it that you will continue to show this behavior in the future as well and does not offer a high credit limit.
Credit utilization: Credit utilization represents the ratio between the debts you have availed compared to the credit limit you were allowed to borrow. A high credit utilization shows that you tend to borrow right through the allowed limit which is not an appreciated behavior. Experts advise to keep the credit utilization as low as 30%. The users with high credit utilization are offered a low credit limit and the users with low credit utilization are offered a high credit limit.
How to increase credit card limit and maintain it
There are certain things that you can do to have a high chance of getting a credit card with a high credit limit which include:
Pay off the credit card bill before the due date and make sure never to miss out on a payment.
Refrain from paying just the minimum amount due. It is best to pay the outstanding debt in full but if you have some financial restraint then do try to pay more than merely the minimum amount payable.
Refrain from revolving the debt from month to month.
Do not carry a very high outstanding debt balance.
Use the account responsibly from six to twelve months to craft an attractive credit history.
Make sure that your credit utilization is low.
Do your bit to get a high credit score.
Monitor your credit report and make sure to look out for any errors.
How to apply for a high credit limit
To apply for a high credit limit it is better to ensure that you are eligible for a high credit limit. This saves your time and effort because if you are ineligible then it is of no use to waste your time in figuring out how to increase credit card limit.
Eligibility Check: the first thing to do when you want to apply for a high credit limit is to check your eligibility. If you have maintained a good credit history (by taking the measures mentioned in the above section), and have a high income level, then you might be eligible for applying for a high credit limit credit card. You can check the eligibility criteria on the website of every credit card issuer and then compare your credentials to see if you are eligible or not. Failing on eligibility criteria saves your and the credit card issuer’s time and you can realistically see where you fall behind as per the criteria. You can then work on your credit profile to work towards the eligibility requirements and then apply.
Credit report review: Before you officially request to uplift your credit limit, it is advised to review your credit report to see where you stand. You can get your credit report for free from a credit bureau in Canada. You can get it from either TransUnion or Equifax which are the two most famous credit bureaus in Canada. Check out the credit report thoroughly. Check for any discrepancies or errors that might have affected your credit rating or credit score. Also, ensure that all the latest information is mentioned in the report. This will help you to check that your report is updated and accurate. If you find any such issue in your report then you can highlight it to the credit bureau and wait for their response.
Send a request to a Credit Card issuer: After a thorough review of your credit report and eligibility criteria, you can then contact your credit card issuer and forward your request to increase your credit card limit. You can do so by calling their customer representative or by visiting the branch in person whatever suits you the most. No matter how you reach out to the credit card issuer, you need to pass on your request to increase the limit of your credit card.
Make a detailed request: Making a request is one thing, but explaining your request in detail is quite important. You need to explain to the credit card issuer why you need them to increase your credit card limit. It is better to rest your case strongly by explaining to them that have gained financial stability and are now eligible to file for a high credit limit. It is best to emphasize how you have gained creditworthiness (whether by a stable source of income, good credit history, responsible usage, low credit utilization, or any other way). You also need to tell them why you need a high credit score and how it might help you maintain your credit history in a better manner.
Share documents: it is better to visit the credit card issuer fully prepared with all the necessary documents that show your creditworthiness. Even if you didn’t take the documents with you still then you can request them to give you some time to submit the desired documents showing your creditworthiness.
Be responsible until a decision is made: Many users maintain a good credit history for a year to apply for a high credit limit. But once they have applied for the increase, they feel relaxed and do not bother to stay responsible for credit card usage. They think that the credit bureau and the credit card issuer will just decide on past behavior. But this is not true, the user needs to stay responsible even when the decision is being made and their documents are being checked.
Wait for the decision: Patiently wait for the decision and follow up if you think it is taking too long. You can ask to provide any required documents to clarify your financial position if required.
Does a high credit limit request lower your credit score?
When you request a high credit limit the credit card issuers usually put on an inquiry which can lower your credit score by a few points (usually 10 to 15 points) however this reduction in credit score is only temporary.
Once your credit limit increases, it will be surely worth it to bear the temporary decrease in your credit score. This is because with a high credit limit, you now have access to more funds to borrow. This allows you to manage your credit utilization more effectively. With more funds to use, you can maintain your credit utilization below the 30% threshold.
So the short-term effect on credit score doesn’t matter when you see the long-term positive impact on your credit utilization and ultimately on your credit score. In essence, learning how to increase credit card limit is beneficial for your credit score.