One of the many advantages of making timely repayments on your credit card is the possibility that your card provider will increase your spending limit. A higher credit limit means that not only do you have higher funds at your disposal when using your credit card for a purchase, you also get some added benefits. Let’s take a look at them.
Lower credit utilisation ratio
An increase in your credit card limit can be your gateway to a better credit score. If you find such a possibility hard to imagine, know that a higher credit limit reduces what is known as your credit utilisation ratio. The lower the credit utilisation ratio, the better it is for your credit score calculations.
Credit utilisation ratio reveals how much percentage of the credit that is available to you is being used by you. Ideally, banks consider 20-30% credit utilisation ratio to be in the safe territory.
Bargaining power for loans
Banks offer higher credit limit after due diligence and proper evaluation of the financial credentials of the card holder. If your bank has offered you an increase in card limit, you can use that as a bargaining tool when seeking various retail loans.
The fact that the bank is offering you a higher credit limit means that it considers you a safe customer who is least likely to default on repayments. This is a strong credential to get a better loan deal including higher loan amount or reduced interest rates.
No need for additional cards
If you have one credit card with a sufficient credit limit, you do not need to opt for multiple credit cards. This means no additional worry about annual charges and late payment fee for any missed or late payments on multiple cards. All you need to do is track one card and its repayment schedule while saving up on any additional charges for the other cards.
Financial emergencies secured
With a higher credit card limit, you have a higher leverage to use more funds using your credit card. When faced with a financial emergency, you can pay more money using your card or opt for a cash withdrawal facility thanks to higher credit limit availability.
Higher card usage rewards
Credit card reward points are associated with the amount of money you spend using your card. With one card, the likelihood of your using it optimally is higher, leading to better reward point accumulation. Extra reward points can be redeemed for gifts and cashback discounts, all of which add up to your savings.
Just by using your credit card judiciously and making timely repayment, you can get a higher credit limit, which can have a spiral effect on all aspects of your financial life.
The writer is CEO, BankBazaar.com