Warning: These tips are not for those who are already in a debt trap or struggling to meet expenses.
A credit card is often looked at as a debt trap and you often hear words of caution about how its reckless use can land you in trouble to say the least. While the above may be true, most people do not see the other side of the coin when it comes to credit card usage. Your credit card, when used judiciously and smartly can actually help you increase your CIBIL score.
There are many factors that influence one's CIBIL score and one of them is a low credit utilisation. Credit utilisation is the total amount of credit you spend as against the total amount made available to you. Of course you can keep your credit utilisation low by spending low amounts on your credit card and never exceeding 30-40 per cent of your total credit limit, but the other way to do it is by increasing your credit limit on your card.
By increasing your credit limit you can definitely give your CIBIL score a boost and thus open up doors of lenders when you are in need of credit. If you are wondering by now what exactly is to be done in order to increase your credit limit on your card, we are here to tell you just that.
Follow the golden rules of credit usage
To have your credit limit increased automatically you need to prove to your credit card issuer that you are a trustworthy customer. The only way to do so is to follow the golden rules of credit card usage, that is, make timely repayments, spend small amounts on your card, keep your credit utilisation and most important of all repay within the billing cycle.
If you simply follow these basic rules, chances are that the card issuer or your bank will automatically increase your credit limit from time to time.
Make the call to your bank
If you have been doing everything right and have not seen an increase in your credit limit in the last six months, make the call your card issuer or bank yourself and make the request for an increase in your credit limit.
Make sure you bring your good credit behaviour to their notice. Chances are, they may not have noted it yet or it's just a case of negligence that you card limit has not been enhanced yet. In such cases, a polite reminder will not hurt!
Check your CIBIL report
If you make the call and your request gets denied on account of a poor CIBIL score, it is very likely that you will be taken aback because you thought you were indeed doing everything right as far as your credit usage is concerned. The problem may not be your credit conduct but a reporting error on your CIBIL report.
Sometimes errors and discrepancies creep in into CIBIL reports given the huge amount of data that lenders and credit bureaus handle. This is the reason why periodic check of your CIBIL report is so important.
If your bank denies you an increase in your credit limit, go back to your CIBIL report and check for errors. In case you spot any, make sure you raise a CIBIL dispute right away and wait for the rectifications to reflect on your report before you make a request to your card issuer again.
Do it for the right reasons
As we have pointed out so far, increasing your credit limit on your card has its advantages. However, make sure you are taking this step for the right reasons, such as dealing with a work related expense or a medical condition that will be reimbursed later, by your company or your insurer.
But for those who are already in debt or struggling to meet expenses increasing one's credit limit may be the equivalent of stepping on a live wire, so make sure you tread with caution!
Illustration: Dominic Xavier/Rediff.com
The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.