How to increase the credit limit for your credit card

Increasing the credit limit on your credit card can be incredibly helpful, if used correctly. But at the same time, it can lead you down a debt spiral if you end up taking the excess credit limit for granted.

Increasing the credit limit can give you the flexibility you need to manage your finances well and even improve your credit scores over time. But that can only happen when you are sure you can pay off your credit card repayments on time month after month.

But how can you increase your credit limit? Let’s take a look:

Credit limit is the maximum credit amount that is extended to you through a financial institution every time you get a new line of revolving credit like a credit card. Most often credit limits are determined by lenders, credit card companies, and banks based on your credit score and credit history available in the credit report. Lenders also take into consideration your previous repayment history, open credit accounts, and personal income, among other factors.

Credit limits can be set for both secured and unsecured lines of credit.

Credit limit is based on the creditworthiness of an individual. When you apply for a new line of credit, whether it's through a credit card or loan, lenders including banks, financial institutions, and credit card providers decide on the credit limit based on your credit score and credit history. They also review your current employment status, current debt, spending habits, and income.

Some credit cards come with predetermined credit limits and offers. To get a higher credit limit, you may have to use the credit card continuously for a while or apply for another card. It's also important to note that credit cards with higher limits take a longer time to get approved.

If you have a bad credit score or have no credit score at all, you may get approved for only a low credit limit. As a new customer, the lender will monitor your spending and repayment behaviour and eventually increase your credit limit.

A credit score is a three-digit number provided to individuals through a credit reporting body which measures their credit worthiness. The credit score is based on all the information present in the credit report and it accurately gauges your overall credit risk. If you are considered a high risk candidate with a low credit score, your credit limit will be considerably lower and you may even have to pay more interest over it.

On the contrary, higher credit scores may lead to higher credit limits. If you have had credit accounts for a long time with a good repayment history, lenders will eventually adjust their terms and raise your credit limit. So even if you only have an introductory credit card with a low credit limit, you can steadily increase the limit on it by using it consistently over the years.

But it's important to remember that when lenders assess your credit report, they can see the open accounts as well as the credit limit you have available on them. Multiple lines of credit followed by high credit utilisation can directly affect your credit rating.

Your credit score can affect your credit limit and vice versa is also true. That is why, you need to take the credit limits of every open account in consideration and never use more than 30-40% of the limit available to you at any given time.

Credit limit is not the same as available credit. While credit limit is the total amount that can be borrowed against a line of credit, available credit is the total amount of money that is available to you currently for borrowing. For instance, if your credit limit is $2000 but you have already used up $800 from it, then your available credit is $1200.

There are several ways to improve your credit limit, including:

Make a request with your lender

You may be eligible for an increase in the credit limit on your credit card but you might not know about it. Many credit card companies offer an introductory low credit limit to all individuals and this limit can be easily changed by making a request online. For a credit limit increase, you can sign into your account and look for an option for it in order to submit a request online.

Alternatively, you can also call the credit card provider’s customer support directly to understand whether you are already eligible for an increase in credit limit or not.

If you still aren’t eligible for an increase, make sure to ask the support team about the reasons why.

Look for credit cards with automatic increases in credit limits

Some credit card companies offer credit cards with automatic credit card limit increases when you have had the card with you for a long time. Though this can also depend on the fact whether you have been using the card responsibility and paying your credit card bills on time or not.

Apply for new credit card

If you have a good credit score and a decent credit history, you may be able to get approved for a new credit card with a higher credit limit. But before getting a new credit card, make sure to read through all the terms and conditions. Some credit card providers do offer high credit limits but that comes with additional charges like increased annual fee or interest rate.

Take a look at our guide for how to choose a credit card.

Pay your credit card bills on time

One of the best and sure shot ways to increase your credit limit over time is to consistently pay your credit card bills on time. Defaulting on repayments doesn’t just harm your credit score, but it can also affect the lender's views about how you handle your credit accounts.

Never use the entirety of your credit limit

Your credit utilisation ratio should always be as low as possible. Just because you have a credit limit does not mean you should max out your limit every other month. In fact, maxing out your credit limit tells lenders that you cannot manage your credit well and you need more credit than you have right now. This can also make it difficult for you to get approved for a new line of credit. Instead, you should aim to use up to 30-40 percent of your total credit limit every month.

Lower the credit utilisation: When you have a higher credit limit, your credit utilisation decreases, which means you have more credit available to you. This in turn improves your credit score and your creditworthiness as well.

Easier to get new loans or credit cards: Higher credit limit means a higher credit score and a better chance of getting approved for a new line of credit including new credit cards, personal loans, home loans, and student loans.

Help in emergency situations: A higher credit limit allows you to use your credit cards in case of emergencies when you may not have enough cash on you. Whether you are travelling abroad and you need a sudden plane ticket home or you have been stuck dealing with an expected expense, an increased credit limit can be immensely helpful.

Earn more rewards: A higher credit limit also means you get more chances to earn reward points as you make purchases through your credit card. You can accumulate rewards in the form of reward points, cashback, or frequent flyer miles, depending on the type of rewards program.

Less hard inquiries: While the easiest way to get more credit would be to just get another credit card, increasing your credit limit on your existing credit card is a better way to go. When you apply for a new credit card, it leads to a hard inquiry which stays on your credit report for over two years or more. Multiple hard inquiries can affect your credit score. Moreover, opening a new credit account also shortens your credit history which is a major factor affecting your score.

If you are sure you can responsibly manage the increased credit limit without carrying a burden of debt, then the benefits of increasing the credit limit definitely outweigh the cons.

But before you consider increasing the credit limit, you should consider checking your credit history to make sure you are in good financial standing.

ClearScore gives you access to free credit reports in Australia with detailed information about your credit history, credit inquiries, open/closed accounts, and of course, your credit score.

Check your credit score today before requesting a credit limit increase.