From time to time, you may receive a message or email from your bank indicating that you are eligible for a credit limit increase on your credit card. While some people who need a higher limit might accept the offer, others may ignore it, thinking their current limit is sufficient.
However, it’s worth considering these offers, as they come with potential benefits. Let’s discuss what a credit limit enhancement is, its advantages, and how to request one if your bank isn’t offering it.
What is credit limit enhancement?
Every credit card comes with a defined limit, which represents the maximum amount you can spend within a billing cycle. For example, if your card has a credit limit of ₹5 lakhs, you can use it for purchases up to that amount, and the limit is replenished after your bill is paid.
A credit limit enhancement occurs when the bank offers to increase this limit. For instance, your current limit may be ₹1 lakh, and the bank offers to raise it to ₹2.5 lakhs.
Why do banks offer credit limit enhancements?
Banks periodically send credit limit enhancement offers to eligible customers based on factors like repayment history, credit score, income, and spending patterns. These offers are designed to encourage higher spending, which increases the bank’s revenue.
Why should you accept credit limit enhancement offers?
- Lower credit utilization ratio: The credit utilization ratio is the percentage of your available credit that you’re using. A ratio of 30% or lower is considered favorable by credit bureaus and helps improve your credit score. For example, if your limit is ₹1 lakh and you spend ₹60,000, your utilization ratio is 60%. But if your limit increases to ₹2 lakhs and you continue spending ₹60,000, your ratio drops to 30%, positively impacting your credit score.
- Eligibility for premium credit cards: Many banks require a minimum credit limit for premium card upgrades. By accepting a credit limit enhancement, you may meet the criteria for an upgrade to a premium credit card with better perks.
- Financial emergency cushion: In case of unexpected expenses, like medical emergencies, a higher credit limit can provide financial relief until you arrange for alternative funds. However, it’s advisable to have an emergency fund, rather than relying solely on credit cards.
How to check for credit limit enhancement offers?
If you’ve missed a communication from your bank regarding a credit limit increase, you can check your net banking or mobile app under the credit card section. Many banks display the option to request a credit limit increase in this area.
For example, HDFC Bank allows customers to check under “Credit Limit Enhancement” in the cards section. Similarly, ICICI Bank provides a feature to check and apply for a limit increase via SMS or net banking.
What if the bank doesn’t offer a credit limit enhancement?
If your bank hasn’t offered an increase and you’re interested, you can proactively contact them. Share your latest income details, like updated salary slips, which can help your case if your financial situation has improved.
Precautions with a higher credit limit
While a higher credit limit can be beneficial, it also poses a risk if your card is lost, stolen, or hacked. To protect yourself, set transaction limits on your card, disable international transactions unless necessary, and consider disabling ATM withdrawals. These measures help prevent misuse in case of fraud.
Conclusion
Credit limit enhancements offer benefits like lowering your credit utilization ratio, helping you qualify for premium credit cards, and providing a safety net during financial emergencies. If you receive such an offer from your bank, consider accepting it—but don’t forget to take precautions to safeguard your card.
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