Things to consider before accepting offers to enhance your credit card limit

Credit card holders of various banks often get offers to enhance their limits. There is always a point when users thought about getting their limit enhanced. While having an increased credit limit may appear attractive, one must carefully consider whether accepting such an offer is in their best financial interests. Increasing the credit card limit is an important decision and one should consider the following things before opting for it: 

1 Debt Management 

One needs to consider their financial situation before taking a decision of increasing their credit card limit. For this, they need to take into account their debt status, if you are good at managing debts then increasing the limit won’t bite, on the other hand, if you already carry a balance on your credit card or struggle to pay off the debt, increasing the limit won’t be an ideal choice. 

2 Utilisation ratio 

Everyone wants to have a good credit score and increasing the credit card limit can help in that process as it will lower the Credit Utilization Ratio (CUR) – the money one owes divided by their total available credit limit. For instance, if you have spent Rs 20,000 on a credit card and your limit is Rs 1 lakh, your CUR will be 20 per cent. Remember the higher the CUR the lesser will be the credit score. 

However, if one's spending habits remain consistent and they use a considerable amount of their credit limit on a regular basis, their credit score may suffer. Choosing a higher limit should be complemented by cautious usage in order to realise the benefits.

3 Long term goals 

It is necessary to consider one’s long-term goals before making a choice of increasing the credit card limit. If one is planning to buy a house, increasing the credit card limit may not be a smart choice given it will only increase the debt. On the other hand, if one is able to maintain a good CUR that may help to get a loan easily which could help in accomplishing a long-term goal like buying a house. 

4 Interest on credit card 

Unable to pay off the credit card debts in full each month could lead to paying more interest on the amount owed. In such case increasing the card limit would not be a smart choice as there is a possibility that you may be unable to pay your bill in full. Here one needs to consider their spending habits and take a decision accordingly. 

Catch the latest stock market updates here. For more news on sports, politics follow Zee Business