Credit card limits are set by the issuing bank at the time you apply for, and subsequently get, approved for your credit card. While the credit card limit usually stays the same, it can be raised in one of two ways. If you develop a steady and excellent credit history with the issuing bank very often you will be granted higher credit limits without even asking. However, you also have the option of requesting a higher limit on your credit card. While there is no guarantee that you will receive one, you can always ask if you feel the need exists.
The Purpose of a Credit Limit
Credit limits are set by the issuing bank for their own protection. If you are very new to the credit world you can expect low limits to start and then get higher limits as time goes on and as you prove yourself to be a low risk cardholder. Credit limits are not determined by age, but by credit history. Usually, college students getting their first credit card will start out with a lower credit limit, but a middle aged housewife who never had her own credit card before can also find this to be the case. It is only after you have a proven track record that your credit limits will be raised or given out initially at a higher limit with additional cards.
For example, a recent high school graduate who does not yet have an established credit history applies for a credit card. He is granted one with a $1,000 credit limit. He uses the card periodically and pays it on time in full each month. After a year he may receive a letter in the mail from his credit card company that his credit limit has been raised to $2,500. He then applies for a second credit card with a different bank who approves him for a credit card and gives him a credit limit of $3,000 because he now has a proven track record with a great credit history and is considered to be low risk.
The credit card company does not issue higher limits on credit cards at the offset because if you are an unknown in the credit world, or if you have demonstrated poor credit performance in the past, you are too great of a risk. They may chance $1,000 on you but not $10,000.
Getting a Higher Credit Card Limit
Obviously, if you have a really good credit history you have a higher chance of increasing your credit limit. If the bank does not automatically raise your limit for you, you can always request a credit limit increase by simply calling your credit card company on the phone and requesting one. If you are raising your credit limit to increase your score (see Pros and Cons below), review each of your balances and current limits to determine the best card on which to request an increase.
If your credit history is not the best, or if you have a slightly shaky payment history with your credit card company, you may not get the increased credit limit you request. However, this should not deter you. If you need a higher limit and cannot get one with the customer service representative you first speak with, then ask to speak to the manager. Most customer service representatives are only authorized to allow a calculated figure that is computed for them, but a manager will have the power to override the limitation and possibly increase your limit to something that is mutually satisfying.
Pros and Cons of Raising a Credit Limit
There are a couple of main benefits to raising your credit limit. If you need to make a purchase on credit that exceeds your maximum limit then it is best to try to raise your limit instead of simply going over your limit. Going over your limit not only incurs additional fees, but it also has a negative impact on your credit history and can initiate default APR’s to kick in on all of your credit cards. The caveat, of course, is not to spend more than you can afford regardless of your credit limit!
Another reason to increase your credit limit is if you need or want to increase your credit score. Part of your FICO score is calculated by the ratio of your available balance to your credit limit. The greater the range, the larger (and better) your score will be. If you are in the position of being able to increase your limit without increasing your spending habits, this could be a boost to your credit report.
Unfortunately, not everyone should increase his credit limit even if he has the power to do so. Financial responsibility is necessary when doing any transactions with a credit card. If someone does not have self control when it comes to shopping, the lower the limit he has, the safer he and his budget will be.
As long as you are in control of your spending habits and need or want to increase your credit limit, all it takes is a simple phone call. No matter what your credit limit is when you first apply for a credit card, if you pay your bills in a timely fashion and show you are credit worthy, you should be able to increase your limit in time.
Of course one way to get a more credit extended to you is to apply for an additional credit card (just be sure that you are using credit responsibly and not overextending yourself). To get started shopping for a credit card now, use the free Credit Card Chaser tool available on this website!
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