Why Did My Credit Limit Increase – 5 Common Reasons
A lending bank or institution fixes a limit on a person availing of loans or credit cards. The concerned person can withdraw or use the money to this limit. Beyond this limit, they cannot use a credit card or use a loan account for cash.
The commercial bank and lending company fixes your credit card limit depending upon your income, nature of the job, and other previous histories of loan repayment. They will also determine if you have earlier defaulted loan repayments.
What is a Credit Limit Increase?
The limit of credit in a credit card or loan account is increasingly subjected to the good customer behavior of the person. This good behavior is monitored by timely repayment of principal sum with interest dues. Maintenance of this credit repayment schedule enables one to have his or her credit limit hiked.
Sometimes, a credit card company may also enhance your credit limit without being told or requested by you. This can happen when your payment schedule is very good and timely.
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How is Your Credit Limit Determined?
A lending company or commercial bank issuing the credit card determines one’s credit limit through an internal banking process known as Underwriting. Underwriting is a mathematical formula based upon the creditor’s income-expenditure-credit repayment history.
The company issuing the credit computes your regular income to assess whether you can repay the money taken as a loan. The lending agency may take into account several other variables including your credit score and bankruptcy score.
Why Did My Issuer Increase My Credit Without Asking?
A credit cardholder may have his or her borrowing limit raised without asking for it. This enhancement in borrowing limit often follows an automatic route when the lending company or bank finds your repayment schedule in perfect order.
This establishes you as a good borrower. The payment of dues with interest on the exact date or just before the due date is considered a positive sign entitling one to come in the bracket of a good borrower.
After a six-monthly study of this repayment trend, the bank may enhance the credit limit on its own without being requested for the same by the borrower.
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Benefits of a Credit Card Limit Increase
An increase in credit limit can help a person in many ways. Following are the main benefits of such an increase in credit limit:
Improved credit utilization: In a banking sense, a good customer is the one who utilizes or uses the money given to him or her. The account is monitored regularly. Someone who asks for credit gets it but sits over it (i.e. not spending from sanctioned loan) is not considered a good borrower. Improved credit utilization is a sign of being a good customer.
More purchasing power: Enhanced limit of borrowing means a person has more or greater purchasing or borrowing power. They can spend more on sundry heads or purposes.
Better terms in the future: When a credit card issuing company enhances your credit limit, it signifies that the concerned bank or agency looks for offering you better terms and conditions for the future. The concerned bank can even act more flexibly to help you with higher loans in the future.
Soft credit inquiries: This is a major benefit that a good customer can avail. If your credit score is good, you can ask for soft credit for sudden cash needs. The lending agency or bank may even relax certain norms to advance soft loans at lesser rates of interest.
5 Common Reasons for Your Credit Line Gets Boosted
A person can have his or her credit line boosted due to a good record established by him or her on credit utilization and timely repayment of dues. Following are the reasons that your credit line has been boosted:
1. Used your existing credit line responsibly:
You are utilizing your credit and not sitting tight over it (i.e. not spending from the credit given to you). This is the sign of a good creditor. Non-utilization of credit amount is the sign of a bad customer who may not be able to reap the benefit of enhancement in future credit limit.
2. Your credit card offers a built-in path to a higher credit limit:
A good borrower can always expect to have his or her limits increased through an automatic route. For this, one does not have to apply. For this benefit, one has to utilize the funds made available and follow a good repayment schedule.
3. You’ve reported an increase in income:
A good customer will always intimate the bank or lending company about a hike in salary or income from the business. This will increase your creditworthiness. The concerned bank will record this hike in income in its record book to consider extending a greater amount of loans or credits to him or her.
4. It may help the card issuer with retention:
A credit card issuer always aims to retain its good customers. The higher this retention rate, the greater the market goodwill of the concerned bank or lending agency. The good borrowers always stand to gain from it. The credit card issuing authority will always try to retain such customers and even extend some extra benefits including some portion of interest payment waiver to retain them.
5. The card issuer hopes you’ll carry a balance:
A prudent credit card user will always try to have a balance left in the account to meet sudden cash requirements. Such customers are always valued by the companies issuing credit cards. Exhausting the total credit limit in a short span of time is a sign of a bad borrower.
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What If I Didn’t Want a Credit Increase?
Nothing is wrong with it. But you must inform the credit card issuing agency as they will charge interest on the total amount advanced. You can politely write to the bank that you don’t require an enhanced credit limit for the time being and will apply for the same in the future if need be.
Not going in for an increased credit limit is not a sign of bad borrowing, in any case. But it is always advisable to inform the concerned lending agency about your status of non-requirement of the enhanced credit limit.
A credit card is a very useful banking instrument. It can be of real help at times when you are running short of cash or need immediate financial assistance. Hence, it must be used prudently. Good customer behavior can also help one avail enhanced credit limit without asking for it.