Many people rely on their credit limits to help them keep up with regular financial obligations. But what happens when you need a higher credit limit? Here, you will learn about credit limits, credit increases, and how long does it take to increase a credit limit!
How Does a Credit Limit Work?
A credit limit is the maximum amount of money a borrower can spend from loan funding or on a credit line. For a credit card account, the credit limit represents the maximum amount of available credit the account holder has at their disposal. Each billing cycle, they may spend as much money as they want on various purchases until they reach that credit limit. If the account holder wants to spend more money using their card during the same billing cycle, they would have to pay back a portion of what they spent that month to the credit card issuer. At that point, they would have an available credit limit equaling the amount of money they paid back.
At the beginning of each billing cycle, account holders will also receive a renewed credit limit from credit card issuers. A typical billing cycle is one month or every 30-31 days.
For funding like personal loans, payday loans online same day, and other loans, a credit limit represents the maximum amount of money granted to a borrower. With loans, lenders send the entire credit limit directly to the borrower upon approval. Once the borrower spends that credit limit, they will have to apply for a new loan if they want to receive more funding.
Credit Limit vs. Credit Access Line
It is also essential to understand the difference between a credit access line vs. a credit limit. A credit access line allows borrowers to spend additional money after reaching their credit limit. Some major credit card issuers, like Chase Bank, offer credit access line options to their account holders.
How Long Does It Take To Increase the Credit Limit on a Personal Loan vs. Credit Card?
After having the same credit limit for a while, many borrowers may want a credit line increase. Depending on your financial situation and what type of funding product you have, the length of time it takes to get a credit limit increase may vary.
For credit cards, account holders may either submit a credit limit increase request or wait for the credit card company to raise the credit limit on their own. If you submit a request for a credit limit increase on your credit card, the card issuer may take a few days to get back to you with an answer.
For loans, borrowers will have to apply for a new loan in order to increase their current credit line. If they are still paying back their original loan, they may also refinance that loan for additional funding and possibly better rates and terms. If approved, it may take just a few hours or even minutes to increase the credit limit on a loan.
How Does Requesting a Credit Limit Increase Work?
Whether you are applying for a new credit line with a private lender or requesting a credit limit increase from credit card companies, the processes are relatively straightforward. First, contact your lender and let them know you are looking for additional funding. From there, a financial representative for the lender will ask for a few pieces of information from you. This information may include:
- Employment status.
- Annual income.
- Amount of money in your checking or savings accounts.
After your lender looks at your information, they will reach out to you with an approval decision. If the lender denies your request for a credit limit increase, they may give you a list of the specific reasons why your request was denied. Some of those reasons may be:
- History of bankruptcy in your recent past.
- Recent loan default.
- Your credit utilization ratio is too high.
- The amount of debt you currently owe is too high.
- You have a history of missed payments or late payments.
If your lender approves your request to increase your credit limit, they will either:
- Distribute your loan funding right away if you refinanced for a credit limit increase.
- Apply your newly increased Credit limit to take effect at the beginning of the next billing cycle, if you received more credit on your credit card.
Can Your Credit Report Prevent You From Getting a Credit Line Increase?
Yes! Your credit report and credit history can help or hinder your ability to receive credit line increases. For example, if you submit a request for a credit limit increase and your lender sees that your credit report and credit scores are not in good shape, they may immediately deny your request. Alternatively, having a credit score on the higher side may help in your endeavors to receive a credit limit increase. Lenders typically feel more comfortable extending additional funding to people who show a history of handling their finances responsibly.
Can a Credit Limit Increase Help Improve Your Credit Score?
Yes! Receiving higher credit limits also has the potential to help you improve your credit report. For example, say your credit card issuer gave you a higher credit line. This higher limit will affect your credit utilization and let credit bureaus know you have access to more funding than you did the last time they compiled a credit report. When your available credit outweighs the amount of debt you owe, you should see a significant improvement in your credit score over time.
Tips for Getting a Credit Limit Increase Faster
Want to work towards getting a higher credit limit? Below are some tips you can take advantage of that may help you receive a credit line increase.
Develop a Strong Payment History
One of the most effective ways to receive a higher credit limit is to make on-time payments for your bills, loans, and other expenses. Payment history is the most influential factor that helps determine your credit score. Therefore, developing a steady payment history will help improve your credit, which in turn may help you receive credit limit increases.
Focus On Debt
Another way to boost your chances of receiving a credit line increase is to work on paying off your debts. Focusing on paying off your debt will help improve your debt-to-income ratio. You can calculate your debt-to-income ratio by comparing how much money in debt you owe to how much money you bring in regularly.
Paying off debts will also help your credit utilization ratio. This ratio refers to how much available credit you have versus how much you are using. For example, say you had a credit card with a limit of $1,000 and a current balance of $500. In this case, your credit utilization ratio would be 50%. However, if you received a credit limit increase of $1,000, making your new credit limit $2,000, a balance of $500 would knock your credit utilization down to 25%.
Become an Authorized User
You may also take advantage of a higher credit limit by becoming an authorized user. An authorized user is someone who has access to use a financial account but is not solely responsible for paying the account balance back. Being an authorized user may give you the opportunity to benefit from a higher credit limit that you would not have access to on your own.
Get a Co-signer
It may also be easier to get a credit line increase on a loan if you have a co-signer. A co-signer is a person in good financial standing who takes partial responsibility for another person’s loan. Co-signers are responsible for paying back a loan if the original borrower becomes unable to make payments. The financial security co-signers bring to a loan agreement is often enough for lenders to feel comfortable enough to extend higher credit limits to people with less-than-perfect credit.
If you have more questions about credit limits, like “if I go over my credit limit what happens?” then check out the CreditNinja Dojo for more helpful info!
How to Increase Your Credit Limit – Experian