Increasing credit limits can improve your CIBIL profile by lowering utilisation ratios, but experts warn it also carries risks, especially if spending habits aren’t managed carefully.
A higher credit card limit can look like a reward, but in practice it is most useful as a credit management tool. In India, the main advantage is that it can bring down your credit utilisation ratio, the share of available credit you are using at any given time. That matters because lenders and credit bureaux tend to favour borrowers who keep that ratio low, especially around the 30 per cent mark, which multiple finance writers say is a healthy target for a strong CIBIL profile.
The gain is real, but so is the risk. A larger limit does not make borrowing cheaper. According to Business Standard, interest on revolving card debt in India can run to about 3.4 per cent to 4 per cent a month, which works out at an annualised rate of roughly 42 per cent to 48 per cent. Once a cardholder carries a balance, the interest-free window effectively disappears for that unpaid amount and charges can build quickly.
Banks usually approve higher limits for customers who have shown six to 12 months of timely repayment, rising income and a solid credit score, generally 750 or above, Business Standard said. OnePaisa and other personal-finance guides note that issuers also look at spending patterns and the length of the banking relationship. Pre-approved offers sent through an app or text message are often the safest route because they are based on existing behaviour and may avoid a hard inquiry on the credit report.
For that reason, a limit increase should come with a personal spending cap. Business Standard recommends keeping monthly card use near 30 per cent of the available limit and using automatic payment for the full statement balance, not the minimum due. Mint and other finance outlets have made the same point: a lower utilisation ratio can help a credit score, but only if the borrower does not treat the extra headroom as permission to spend more.
There are also administrative details worth checking. If a customer asks for a manual review, banks may ask for updated salary slips, income tax returns or bank statements, and any mismatch can lead to rejection. Business Standard said some lenders may charge a small fee for a document-heavy request. After any increase, cardholders should verify that the new limit has been reported correctly to CIBIL, because an unrecorded rise will not improve the score. If a request is refused, the prudent course is to wait at least six months before trying again.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
