Tuesday, 20 September 2016

How Does Credit Limit Affect Credit Score


Credit score is a three-digit numeric that reveals your creditworthiness. It ranges from 300, which is the minimum, to 900. The closer your score is to 900, the more willing lending institutions will be in entering into an agreement with you. A number of factors go into calculating your CIBIL score, and one such factor is the credit limit. A credit limit is the maximum amount that a lender permits you to borrow on a credit card. Lenders will look at your score when they set your limit. Looking at your CIBIL score gives them a better idea of your repayment pattern and your ability to repay future credit. Thus, if you wish to get a credit limit increase, it is important to understand the different ways on how to improve CIBIL score.

When you make a request to the lending institution to increase your credit limit, the institution will perform a credit check. They will look at your credit report, which will reveal to them your credit history. The report shows them the kinds of credit you use, whether bills and EMIs have been paid on time, status of your credit accounts and the duration for which your accounts have been open. What is important to be noted is that every time a credit inquiry is made, your score gets affected. So keep that in mind when you make a request for a credit limit increase. In case you come across inquiries that you did not initiate, you can raise CIBIL dispute over the same and get it removed. Spotting and rectifying discrepancies in the report is one of the ways on how to improve CIBIL score.

Increasing your credit limit is one of the solutions to how to boost your credit score, provided you do not increase your spending accordingly. Your score will be positively impacted when more credit is made available. Raising the limit and keeping the spending in check can help lower your credit utilization rate. When the credit utilization rate is low, your score will go up. On the other hand, if you avail a higher credit limit and use all of it up then your credit utilization rate will shoot up and your score will be brought down. Also if you make a request to lower your limit, your credit utilization rate may go up. Make sure to get all information from the financial institution before sending out any application. Remember, keeping your credit utilization rate low is one of the ways on how to improve CIBIL score. Consider asking for a credit limit increase when your income has increased or when you do not have much debt.

The sum that you owe on your cards plays an important role in determining your CIBIL rating. With an increase in the credit limit, there is a possibility that you may end up having more debt on account of increased spending, thus raising the amount that you owe. Increasing the overall debt will terribly hurt your score, and because of this other lending institutions may be hesitant to enter into any agreement with you. If they do then they could charge you exorbitant interest rates in exchange of the credit. Thus, making sure that you limit your spending and paying down your debt is another solution to how to boost your credit score.

It is important that you have a good credit score to show when lenders make a credit inquiry. Look at the different ways on how to improve CIBIL score if you do not already have a score of at least 750. Most financial institutions do not even proceed with applications where the score is below 700. Ensuring timely payment of bills is one of the ways on how to boost your credit score. Delays on loan repayments can hurt your score and tarnish your creditworthiness. Another solution to how to improve CIBIL score is by lowering your credit utilization rate, as seen above. It is essential to practice the different ways on how to boost your credit score before sending out application for a credit limit increase since chances of approval will be higher.

While a higher credit limit means that you have more credit at your disposal, it does not mean you have to increase your spending accordingly. Increasing the limit is a good thing if you are financially disciplined. It can then serve as your asset. On the other hand, if you are careless then you will quickly fall into a debt trap. Make sure to practice the different ways on how to boost your credit score so that you do not face any hindrances in your financial journey.

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