Having a high limit credit card offers many benefits in Canada. Getting the right credit card could save you tons of money yearly. Regardless of whether you’re seeking lower fees, more rewards, or valuable benefits such as travel, medical insurance, or rental car savings, every money counts.
You can leverage your credit card wisely by paying off your balance timely and finding suitable reward programs for you. There are tons of credit card options out there in Canada today, so it can be quite challenging to find the best deal.
Once you decide on the credit card you want and apply for it. You’ll have to go through the application process, and in about a few weeks later, be sure to receive a letter in your mail congratulating you on your new credit card.
Alongside your credit card, you’ll get other packages that will include the card’s disclosure, terms, and conditions. It is crucial to you carefully review and understand the terms and conditions. The agreement discloses any possible cost of using your credit card. Your credit limit may lead to potential costs.
What is a Credit Limit?
A credit limit is the highest amount allocated to you by your issuer to spend on your credit card monthly. This limit can be outstanding at any time on your account and can include expenses by any additional cardmembers. Generally, financial institutions approve of a specific amount and define the duration a credit card statement spans.
Once you receive your credit card, it comes with an initial credit limit. It is crucial to know your credit card limit ahead of time because your issuer might decline your request if you exceed your credit limit. There are also penalties attached to exceeding your card limit.
Your credit card issuer determines your credit limit. The evaluation is based on several factors that help your card issuer assess your creditworthiness. Some of the criteria include:
- Personal income
- Duration of credit history
- Personal expenses
- Current limits on other credit cards
- Debt-to-income (DTI) ratio
If you have a good history of handling your card, a higher limit can boost your credit by keeping your utilization low. Credit utilization plays a significant role in determining your credit score. A low utilization indicates that you’re living well within your means. Generally, it is advisable to use 35% or less of your credit limit on each card.
Increasing your Credit Limit
Getting your card declared because your credit limit is not enough can be inconvenient. To prevent such occurrences and have more space for large purchases, increasing your credit card limit is the way to go.
Although having more room on your credit card may seem like a better option, a higher credit limit is a two-way thing. It can be harmful or helpful depending on your financial situation.
Getting approval for a higher credit card limit is not as easy as it appears. There are so many factors that are considered before a request is approved. If you are seeking to increase your credit limit, you should consider the following:
- The effect a higher credit score might have on your credit score
- The possibilities of you paying off the amount you’ll be spending in full monthly.
Your credit card limit is determined based on the metrics that consider your credit score, duration of credit history, the application rate for other forms of credit, income, debt, among many others. Your credit score plays a significant role in your credit card limit.
If your credit report shows you have a high credit score – typically an average of 670 and above-indicates to your lender that you have a history of offsetting your bills on time. It also shows a lower risk of default to the issuer. Your issuer is likely to provide you with a higher credit limit for having a higher credit score.
However, if you have a less attractive credit score, anything below 670 shows you may have a history of offsetting your bills late. This may lead to being turned down for credit. Don’t fret; some issuers may still approve your application for a credit card. However, you’ll receive a lower credit limit because you present a higher risk to the issuer.
Impact of Credit Limit on your Credit Score
Regardless of your credit limit, having an increase in credit limit can still have a positive impact on your credit score. Your credit score is influenced positively when more credit is available to you. As long as you are responsible for managing your payment, monitoring your account balance, and keeping it beneath your credit limit, you don’t have to worry.
Generally, it is recommended to keep your credit utilization beneath 35% of your available credit. If you exceed your credit card and other forms of credit available to you, it will leave a negative impact on your credit score.
Low Credit Limits cannot be discarded. If you have a low to no credit history, you’ll have to start with a low credit limit. The good side to this is that a low credit limit can still come in handy. If you carry a small balance monthly and pay offset it in full, it can boost your credit score and lead to a credit limit increase.
If you have a high credit score, you’ll get a higher credit limit. Note that you don’t have to accept a higher credit limit if you don’t need it. It would be best if you only receive a credit limit you’re comfortable with. You can always lower your credit limit with a phone call to your issuer.
Requesting a Credit Limit Increase – How to Get a High Limit Credit Card
If you’re about to make a significant expense such as getting a new appliance, home renovations, etc., a credit limit increase can be the best way to go about it. You can increase your credit limit conveniently via the following means:
- A phone call to your issuer
You can call the number at the back of your credit card. This call will connect you with a customer service representative that will inform you if you’re eligible for a higher credit limit. Note that the customer representative might ask you the reason for your request and if you’ve had an increment in income recently.
- Through online banking
Most credit card issuers allow their cardholders to request a credit limit increase online. You can do this by signing in to your account and look for an option to submit a request. Note that you may be required to update your income details. A higher-income may point to your issuer that you have greater financial security. Issuers might consider this when evaluating your request.
- Appy for a new card
You can apply for a new credit card if you’ve been making a timely payment with the lines of credit you already have. If your credit is exceptional, you might get approved for a new credit card with a higher limit. The good side of this is that even if you don’t get a higher credit limit from the new card, it still increases your total available credit.
- Seek automatic increase
You can look for automatic credit limits from companies that render this service to their cardholders. Some companies give their cardholder an automatic credit limit increase when they’ve possessed the card for a long duration. Also, when they have been using it responsibly.
Other ways you can request a high credit limit include:
- Write a letter to your issuer.
- Send an email
- Visit a branch
If you’ve had the card for over a year and you’re up-to-date with your credit card balance payment in full, you’ll have a better chance of getting approval. It is advisable to apply for a credit limit increase in advance, as the verification process can take a few days to a couple of weeks to get approved.
Before contacting your provider, you must consider:
- Your credit score
It will help if you have a healthy credit score before considering getting a limit increment. If your credit score isn’t healthy, seek alternative means to fund your purchase. When we say healthy credit score in Canada, the below is the measure:
- 760 – 900: Excellent
- 725 – 759: Very Good
- 660 – 724: Good
- 560 – 659: Fair
- 300 – 559: Poor
Click here to find out your credit score in Canada.
Improving your Credit Score
If you’re looking to increase or boost your limit, below are some tips that will help you attain that height:
- Make timely payment of your credit card bills.
- Maintain an average credit utilization – keep it under 30% if possible
- Remit more than the minimum payment
It is advisable to evaluate your reasons for wanting a high-limit credit card even if you’re sure you’ll get approval. If getting a high-limit credit card will lower your utilization and make payments flexible for you, then you can go for it. But if you need it due to debt or a financial emergency, a higher limit credit card might not erase your debt; instead, it could worsen it.
Generally, it is recommended to get a high credit card when you’ve got a pay increase, have good credit, or have a good record with your issuer.