Nowadays, people are more fond of using advanced technology in payments. This is why the term FinTech or Financial Technology arose. Alternatively, more people work hard to apply and get approved to use credit cards. Usually, the starting or the entry-level credit limit is at P20,000.00. But how do you increase your credit limit?
Before we get to that topic, let us first understand what a credit limit is, how it works, and how banks determine how much they need to give to their clients.
What is a credit limit?
In its simplest terms, a credit card limit or simply, a credit limit, is the maximum balance that you can have on your credit card at any given time. For instance, if you have a credit limit of P10,000.00, you can purchase items or any goods as long as it’s within P10,000.00.
The credit limit is the total amount that you can spend using your card. If your credit limit is high, then you can do more or purchase more with your card.
How do credit limits work?
A certain credit limit is flexible in terms of payment and in terms of usage. Having that said, if you have a credit limit of P10,000.00, you can use it to purchase two (2) P5,000.00-priced items; or you can use it to purchase a P10,000-item; it could be anything as long as it is within the limit. You can use it and maximize your credit limit so long that it fits the limit that you have.
As long as you regularly pay your bills, you will be able to keep using your card. Upon reaching your credit limit, the issuing bank might decline your purchases until the time that you have at least paid off your balance—or at least a portion of it.
How do banks set the credit limit?
It’s actually unclear but most people say that banks look at three (3) factors in determining the credit limit of certain individuals. These factors are what they look at and assess for them to get a better and a clearer picture of your financial state and status.
Most usually, banks conduct what they call a credit evaluation and these factors are what they mainly look at in assessing the worthiness of you getting a credit card.
Different factors that affect the credit card limit
If you have applied for a credit card, chances are, you have been required a statement that clearly says how much your income is on a monthly basis. If you’re an employee, you will be asked to submit your most recent payslip, or an income tax return (ITR).
Self-employed people, on the other hand, are often required ITRs and bank statements. Nevertheless, what the bank needs is a proof that you have income and to see how much you are earning in a month.
Contrary to popular belief, banks also look at your credit history to determine how much credit limit you will be given. Should the bank you are applying to see that you are a good borrower and that you have managed your debts appropriately, it’s a good chance that you will be approved.
Otherwise, this might be one of the reasons why you get a lower credit limit or worse—you will get rejected.
No credit history yet?
If you have no credit history yet, it might not be a factor for approval but it can lead to you being approved of just a low credit limit. This is because the bank would not have enough data to assess for them to allow you of a high credit limit.
Last but most definitely not the least, is your debt-to-income ratio. Banks would most likely check your debt-to-income ratio not only for them to know if you are appropriately paying your debts or not—it is also one of their basis in determining how much credit they can give you.
As per an expert, you would want your debt-to-income ratio to be low; why? Because having a low ratio will definitely lead to a higher credit card limit.
Now that you know the main different factors banks look at in determining or in approving your credit limit, how can you work to increase your credit limit?
Easy and possibly ways to increase your credit card limit
Most people do not know this but it actually is possible to increase your credit card limit. A lot of people just resort to them, being good on their first (1st) ever credit card and just apply to a different bank. Although this is good practice, it might also be better knowledge for those people to know that they can request to increase their credit card limit.
Here are the things that you can do to help you increase your credit limit
Use your card regularly BUT manage it responsibly
Did you know that not using your credit card is worse than actually using it? Why? this is because banks often review their clients’ credit card activities accordingly. If they see that you are using the card and that you are paying them responsibly, then it’s just an easy way for you to increase your credit limit.
Paying off your monthly balance (both the minimum amount due and the whole thing) is actually good for the eyes of the bank and its officers. This literally means that you are patronizing their business and that you are paying attention to your credit activity.
Most bank experts say that after six (6) to eight (8) months of responsible and appropriate usage, you can already request to increase your credit limit. It will be reflecting on your account, anyways so don’t worry.
Apply for more than one (1) credit card
This is what we were talking about a few lines above. Applying for more than one (1) credit card is like getting yourself immediate approval for any other types of credit cards, too. Why? Because some banks look at it as them, getting extra work because the credit investigation they would do, would not be as extensive as the first bank that approved your application.
Having one (1) credit card means that you are eligible for a credit card; it’s just going to be the credit limit they will be giving you that needs to be assessed.
Security deposit increase
In some instances, some applications get directed to them to be secured credit cards. We were able to discuss what a secured credit card is in a separate article. Now, if you have a secured credit card and you really want your card to be approved to a legitimate credit card with a better and a higher credit card limit, adding a bit to your secured credit card can do it.
Do note, though, that you need to inform your issuing bank about your plans of adding to your security deposit; you need to know how the exact process works so that you can avoid any kind of altercation and problems in increasing your security deposit for your secured credit card.
Contact the bank to request for the credit limit increase
Once you get all of those in place and if you think that you’re already eligible for the improvement; you can then contact your issuing bank to request for the increase of your credit limit. It might take them a couple of banking days to get the result but hopefully, it gets approved by your issuing bank.
Those are the ways on how you can increase your credit limit. They’re not Rocket Science—they are, in fact, easy ways for people (like you) who have credit cards.
Credit card limits are usually unpredictable and as a matter of fact, no one really knows the factors on what issuing banks look at in terms of providing or setting a credit limit for credit card holders.
Do you have a credit card? Do you want to enhance or increase your credit limit for better types of usage? Are you looking for ways on how you can heighten the credit card limit you have for better transaction history and record? Don’t fret—we got you covered. Just make sure that you are responsible for your act and the bank will feel and notice that you are already eligible in increasing your credit card limit.