If you have a credit card or overdraft but want to increase your credit limit, how can you go about it? This guide looks at what you can do to increase your limit and, more importantly, whether or not you should.
What is a credit limit?
This is the maximum amount you can spend up to on a credit card or overdraft.
When you apply for a credit card, you won’t usually know what the credit limit will be, although you might be told the maximum for new customers.
Often, you will only be notified of your actual credit limit when you receive your new card.
That can be a real problem in some cases.
For example, if you want to transfer an existing balance, to take advantage of a 0% deal, but your new credit limit is too small to do so, you might be disappointed.
If this matters, ask the card provider before you apply, and before you sign the credit agreement.
The card provider should be able to give you an idea of how much you are likely to be offered, although they might need to do a credit check first, to make sure that you’re eligible and can afford to repay that amount.
If you’re shopping around and not yet ready to apply, make that clear so a mark isn’t left on your credit file.
Increasing your credit limit
If you aren’t happy with your credit limit, you can request a higher limit from the credit card provider.
However, it is a good idea to wait for several months first so that the lender can see that you’re a sensible customer.
Of course, if you exceed your existing limit on your card or miss any payments, the card providers is unlikely to agree.
Not only that, but you’ll damage your credit rating, which might stop you getting a better credit deal elsewhere.
The card provider might offer you a higher credit limit, once you’ve been with them for a while.
You don’t have to accept this – you can reject the proposed increase (or ask for a smaller increase), and you can also make it clear that you don’t want to be offered any future increases – for example because you’re worried you might be tempted to over spend.
If you decide you don’t want an increase, let the card provider know – they should make it easy for you to opt out.
How to improve your credit score
If you want your lender to increase the amount you can borrow, you need to be as creditworthy as possible.
They won’t give you a higher limit if they think you can’t afford it or are likely to default.
Lenders usually decide whether or not you’re a suitable customer by looking at your credit reference file, as well as making other checks.
They will take into account how well you’ve managed your existing credit commitments.
But before you take any steps to increase the amount you can borrow, you need to be sure it’s right for you.
Increasing your credit limit – Can you afford it?
Whenever you’re considering increasing your debt, it’s essential you work out a repayment plan that you can afford first.
Check the articles below for more information:
- Good debt versus bad debt
- Can you afford to borrow money?
- Working out a repayment plan for your borrowing
Don’t increase your debt without authorisation
If you want to increase your authorised overdraft limit then it can be tempting to simply keep spending.
But that is a really bad idea. Even if the bank allows you to spend beyond your overdraft limit, you’re likely to be charged high fees for doing so (much higher than for an authorised overdraft).
In other cases, the bank might refuse to pay but charge you an ‘unpaid item’ fee.
In either case you risk damaging your credit rating.
Should you increase your credit limit?
It’s worth thinking about why you want to increase the amount you can borrow.
There could be some perfectly sensible reasons but it also might be a warning sign that you aren’t handling your debt well.
When to consider increasing your credit limit
For example, maybe you use your credit card to pay for work-related expenses before claiming them back.
If your expenses suddenly grew then it might be a good idea to increase your credit limit to avoid a cash-flow problem.
If you regularly pay your credit card bill in full each month and have a solid income stream, the bank or card provider might agree to the increase, if it’s not too much.
When not to increase your credit limit
However, perhaps you want to increase your credit limit because you’re struggling to meet all your expenses, including repayments.
If that’s the case then increasing your credit limit isn’t the best idea as you’re really only adding to the problem.
If that’s the case, it’s important to act as soon as possible to stop yourself getting into levels of debt you can’t pay off.
You could speak to a free debt adviser, or ask the card provider to reduce your credit limit, if you’re worried about over-spending.
Steer clear of high cost lending
If you can’t increase your credit limit then you might be tempted to turn to expensive, short-term lending.
In many cases borrowing at a high rate of interest just delays and worsens the problem and so should be avoided if possible.
Increasing your credit limit – Is it a bad idea?
Even if you’re not at risk of taking on too much debt, increasing your credit limit might not be the best thing to do.
It will increase the temptation to take on more debt than you otherwise would.
It can also stop you qualifying for other, more important lending like a mortgage.
That’s because lenders often look at the amount of credit you have access to when they are deciding whether or not to lend to you.
Even if your credit card isn’t up to its limit, simply having a high credit limit might put other lenders off.
This article is provided by the Money Advice Service.