The maximum credit available to you on your card is known as the credit limit. This limit is set depending on the kind of card you opt for and your own creditworthiness. Going over this limit attracts a penalty.

Why would you increase the limit on your credit card?

- To make big-ticket purchases.

- To meet expenses during travel.

- To meet expenses during an emergency.

- To improve your credit score by maintaining adequate difference between your credit usage and credit limit. Better credit scores allow for easier loan processing at future dates.

- To increase rewards earned through increased usage.

How do you increase your credit card limit?

- By applying for it i.e. requesting the card issuer for an increase.

- Automatic increase in the limit by the card issuers themselves.

Why would a credit card issuer automatically increase the credit card limit?

Credit card issuers often reward cardholders with increased credit limits if they display satisfactory usage and repayment habits. Maintaining a healthy utilisation ratio i.e. the amount used on the credit card to the limit available can qualify you for a higher limit without applying for it.

Will an increase in the credit limit affect credit scores?

An automatic increase by the issuers themselves won’t be recorded in your credit report. However, if you apply for an increase in the limit and submit new documentation for the same, it could affect your credit scores.

Why would an increase in the credit limit affect credit scores?

Too much credit without a good track record of usage and repayment gives a negative impression of one’s credit-management capabilities. Too much credit also reduces your creditworthiness as your debt obligations are enhanced thereby reducing your servicing capabilities (unless you have a corresponding increase in disposable income).

However, if you have a high credit-utilisation ratio i.e. if you use a large part of the credit available on your card often, increasing the limit on your card will positively affect your credit score. This is because your credit-utilisation ratio will reduce without having decreased your usage.

What documentation is required for an increase in the credit limit on an existing card?

The requirements differ across lenders but the documents generally required, alongwith the application, are:

- Proof of the cardholder’s income

- Tax returns

- Credit card statements from alternate issuers, if any.

Is there such a thing as an unlimited credit card?

Yes, some issuers offer credit cards without any limits. These cards are specially designed to suit the needs of Ultra-High Net Worth Individuals. It is not commonly offered to applicants.