Credit limit refers to the maximum amount of credit a financial association extends to a customer through a line of credit as well as the maximum amount a credit card company allows a borrower to spend on a single card. Lenders usually set credit limits based on information in the application of the person seeking credit.
Whether a borrower has a line of credit or a credit card, the credit limit works the same. Essentially, the borrower may spend up to the credit limit, but if he exceeds that amount, he typically faces fines or penalties in addition to his regular payment. If he has spent less than the limit, he can continue to use the card or line of credit until he reaches the limit.
A good credit score plays a key role in your financial well-being. The better it is, the easier it is for a user to qualify for a mortgage or car and student loans. An easy way to increase the credit rating is to get a higher spending limit on a credit card. By lowering a user’s credit utilization ratio, which is the percentage of his available credit that he is using, he can boost his credit score substantially.
Credit utilization accounts for 30 percent of the FICO score. A user will have to keep in mind; the lower is the total credit utilization, the higher is the possible FICO score. But before a user embark on requesting a higher spending limit; make sure he is doing it for the right, responsible reason.
• Try to be conservative when a user is requesting an increase. A user’s issuer will typically base its decision on a credit and what kind of a line increase he asks for.
• A user shouldn’t ask or expect for an issuer to double his credit line. Stick with between 10 to 25 percent. If a user do ask for too much and get declined, he will most likely have to wait at least two to three months before asking again.
• The best way to get an automatic increase is to ensure the account has relatively low limits. The higher a user’s limit, the less likely it is that the issuer will hike it for him.
• A great way to convince the issuer to deserve more money is by using a card regularly and paying it back. The easiest way to do this is to stop paying for things in cash and put them on that card instead. Use the cash to pay another card balance off within that billing cycle. If a user continues with this system, he will build his credit score while increasing the chances for more credit.
• Make sure a user isn’t requesting limit increases with all of the cards. When a user requests a limit increase, his issuer pulls the credit report, and that inquiry can cause a temporary dip in the credit score.
Instead, focus on the best credit card, and make one strong case to one company, rather than a half-attempt to a bunch of companies. If they say no, make sure a user waits a couple of months before trying again with a different issuer.