The company that launched the credit card initially approved a lower credit limit for new card applicants. After which the decision is being made to increase the credit limit in view of the repayment and income growth of the cardholder. However, after spending more than accepting the proposals of high credit limit, there is a fear of getting trapped in the loan trap. Let's know the advantages and disadvantages of increasing the credit limit.
Credit bureaus look at your credit utilization ratio while calculating your credit score. This ratio is the ratio of the total credit limit used by a cardholder. Generally credit card companies consider CUR to be a sign of debt if it is at more than 30% level. Therefore, by increasing the credit limit, you can see an improvement in your credit score. Sahil Arora, director of Paisabazaar.Com, said that if your existing credit card company refuses to increase the limit of your credit card, then an additional credit card will have to be applied from other card issuers.
For example, suppose that the limit of your credit card is 1 lakh rupees and you usually spend around 50 thousand each month. So in this case, your CUR will be 50%. Now if your issuer increases your credit limit to Rs 1.7 lakh, then your CUR will come to 29 count. Similarly, if you can also keep an additional credit card with a credit limit of 70 thousand rupees, then you will see the same effect on CUR.
Easy to deal with financial crisis: With the increase of credit limit, it is easier to deal with financial crisis. This job can work as an emergency fund due to financial crisis due to job loss, sickness, accident, disability etc.
Possibility of getting more loans: An increased credit limit can get you more loans. This limit is generally accepted in lieu of the credit limit of the credit card holder. Loans are usually pre-approved in lieu of a credit card.
Fear of getting stuck in debt trap: After an increased credit card limit you can spend more, but if its use is not wise then you can get caught in debt trap.
You may have to pay more interest: If you do not pay your bill every month, you may have to pay more interest on your outstanding balance.