Credit limit enhancement offer on credit card: Should you avail of it?

From time to time, you may get a message or email from your bank mentioning that you are eligible for an increase in the credit limit on your credit card. Some people who need a higher limit may accept the offer. Some people may ignore the message, thinking they are already using the credit card for a lower amount than the existing limit and hence don’t need it. 

However, you should consider accepting the credit limit enhancement offers when the bank offers it as it has benefits. Let us discuss what is a credit limit enhancement, its benefits, and how to get it if the bank is not offering it.

What is credit limit enhancement?

Most credit cards have a defined credit limit. For example, you may have a credit card with a credit limit of Rs. 5 lakhs. It means you can use the card for an amount of up to Rs. 5 lakhs in a billing cycle. Once the monthly bill is generated, and you pay the entire outstanding, the entire credit limit is replenished.

When the bank offers to increase your existing credit limit, it is known as credit limit enhancement. For example, the bank offers to increase the current credit limit of Rs. 1 lakh on your credit card to Rs. 2.5 lakhs. The above is an example of credit limit enhancement.

Why does a bank give credit limit enhancement?

From time to time, banks send a communication through SMS, WhatsApp, email, App notification, etc., to customers about credit limit enhancement offers, based on their eligibility. The bank sends these credit limit enhancement offers to encourage customers to spend more with a higher credit limit. The more the customer uses the credit card, the more revenue the bank will make. The enhancement is based on a number of factors, including past repayment track record, increase in credit score, increase in income, past spending pattern, etc.

Why should you accept credit limit enhancement offers?

When a bank sends you a credit limit enhancement offer on your credit card, you should consider accepting it as it has some benefits. These include:

Lower credit utilisation ratio: The credit utilisation ratio measures the credit limit utilised from the total available credit limit. For example, Diya has a credit card with a credit limit of Rs. 1 lakh, and she uses the card for transactions of Rs. 60,000 in a billing cycle. In this case, Diya’s credit utilisation ratio will be 60%.

A credit utilisation ratio of 30% or lower is considered good by Credit Information Companies (CICs) like CIBIL, and it contributes towards increasing your credit score. A credit utilisation ratio of more than 30% affects your credit score adversely.

In the above example, suppose the bank gives Diya a credit limit enhancement offer. The bank offers to increase the credit limit on her credit card to Rs. 2 lakhs. If Diya accepts the offer and continues to spend Rs. 60,000 in a billing cycle, her credit utilisation ratio will drop to 30% from the earlier 60%. Thus, with a higher credit limit, Diya’s credit utilisation ratio will be lower, which will contribute towards increasing her credit score.

Hence, you should consider accepting credit limit enhancement offers on credit cards whenever the bank provides them. They help you to lower the credit utilisation ratio and, thus, contribute towards increasing your credit score.

Helps in applying for premium credit cards: From time to time, banks allow customers to upgrade their existing credit card to a higher-level premium credit card based on eligibility. One of the eligibility criteria for a card upgrade is the credit limit on the existing credit card is equal to or more than the minimum credit limit on the premium credit card.

For example, a bank has a premium credit card, ABC. Customers with other credit cards with a minimum credit limit of Rs. 5 lakhs and above can upgrade to credit card ABC, provided they meet other eligibility criteria. A customer, Gita, wants to upgrade her existing credit card XYZ with a credit limit of Rs. 4 lakhs to the premium credit card ABC. However, in this case, the bank will not allow Gita to upgrade as the credit limit of Rs. 4 lakhs on the existing credit card XYZ is lower than the minimum credit limit requirement of Rs. 5 lakhs for the premium credit card ABC.

Suppose the bank gives Gita an offer to increase the credit limit on her credit card XYZ from Rs. 4 lakhs to 5 lakhs, and Gita accepts the offer. Now, with a credit limit of Rs. 5 lakhs, Gita can apply for an upgrade to premium credit card ABC, provided she meets the other eligibility criteria.

Some banks give you their regular/premium credit card if you hold a credit card of another bank with a higher limit. The new bank may match the credit limit of the existing bank credit card. The new credit card is issued on a card-to-card basis the existing credit card and its credit limit.

Hence, whenever the bank gives you a credit enhancement offer, consider accepting it if you plan to upgrade to premium cards from the same bank or other banks.

Useful in cases of financial emergency: In the event of a financial emergency like hospitalisation or others, a credit card with a higher limit can come to your rescue. During an emergency, once the payment is made with the credit card, it gives you breathing time to make alternate arrangements for money till the credit card payment is due. The higher the credit card limit, the more financial cushion it provides you during financial emergencies.

However, relying on credit cards during any financial emergency is not recommended. You should build and maintain a separate emergency fund with 3 to 12 months of expenses.

Where to look for credit limit enhancement offers?

Whenever a credit limit enhancement offer is generated, you will get communication from the bank. However, if you have missed the communication, you can check the offer in your net banking or mobile App. You can go into the credit card tab/link and check the request or manage card section. If you are eligible for an increase in the credit limit it will show the details in this section.

For example, for HDFC Bank, take the following steps.

Login to net banking 🡪 Cards 🡪 Credit cards 🡪 Request 🡪 Credit Limit Enhancement

As per the ICICI Bank website, if eligible, you can increase the credit limit by sending an SMS from your registered mobile number as follows.

SMS CRLIM <last 4 digits of card> to <5676766>

You can also log in to ICICI Bank net banking or the App and check if you have any credit limit enhancement offers.

What should you do if the bank does not send a credit limit enhancement offer?

We have discussed in the earlier section how banks send credit limit enhancement offers to customers from time to time. However, what if the bank has not sent you an offer for a long time, and you are looking for one?

In such cases, you can reach out to the bank and ask them to increase the credit limit on your credit card. For example, if you are an American Express credit cardholder, you can call customer care and request them to increase the credit limit on your card. If eligible, they will increase your credit limit.

For credit limit enhancement, when contacting the bank customer care through email, you may attach a copy of your latest salary slips. Your salary may have increased recently, but your financial data may not be updated with the bank. When you send the latest income details to the bank, it may help in getting a credit limit enhancement.

To get credit enhancement offers from the bank regularly, you may take the following steps:

1. Send the latest income information to the bank whenever you get a salary hike.
2. Always pay the entire outstanding amount on or before the due date.
3. Maintain a low credit utilisation ratio of 30% or lower.
4. Work on boosting your credit score.

Precautions with a higher credit limit

Now that you have managed to get a higher credit limit, you should take some precautions. A higher credit limit can expose you to big fraud if your credit card details get hacked or the card is lost/stolen or falls into the wrong hands.

It is recommended that you set appropriate transaction limits on your credit card. For example, disable international transactions on your credit card. Enable them only when needed. Similarly, you may disable domestic ATM transactions on your credit card. For other transactions, you may apply per transaction or daily transaction limits. These limits will restrict the financial damage if the card is hacked/stolen/lost or falls into the wrong hands.

Credit limit enhancement

We have discussed the benefits of credit limit enhancement, like lowering the credit utilisation ratio, helping apply for premium credit cards, helping in financial emergencies, etc. So, the next time the bank sends you a credit enhancement offer, consider accepting it. However, once you accept it, make sure you set the necessary transaction limits to protect your card from any misuse.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.