When to ask for higher credit card limit?

It is said that a bank is a place that offers you a loan when you don't need it. The same can be said about a credit card limit. When you least expect or want to increase the credit limit on your credit card, you will get a call from your bank saying you have a pre-approved credit limit upgrade. And all you need to do is say yes and the limit on your card will be increased. But is advisable to increase the credit limit on your card? Is there a good time to do so? Is there a bad time to do so? DNA Money spoke to experts to help understand the nuances of a higher credit card limit. Read more to find out.

When to ask for an increased credit limit:

Good borrower: When it comes to being a borrower, there is such a thing called being a good and a bad borrower. If you are a good borrower, it's okay to ask for a credit line increase in certain circumstances. Hrushikesh Mehta, Country Manager – India, Clearscore Technology Services says, "The best time to apply for an increase in a credit card limit is when you have a good payment track record (hence, a good credit score) and you have low debt levels. For example, if you have recently paid down a loan or are close paying one down you would have a better chance at a limit increase."

In short, if you've shown good payment behavior, you stand a better chance of getting a credit limit increase.

When your spending behavior changes: If you are a good credit card borrower, who pays the card bill on time and is using the card for convenience as not as a source of financing, you can go ahead and ask for an increase in credit limit in certain conditions. Samant Sikka, CEO and Founder at Sqrrl - a money investment app says, "If you are a good borrower and there is a change in your spending pattern then it's completely alright to ask for a credit hike. For instance, if you normally charge Rs 50,000 on the card monthly, but now decide that you will start adding your monthly utilities say for Rs 25,000 on the card as well. In such a case your spending pattern has changed. It's okay to ask for the credit limit increase, to keep a buffer. The intention should not be about rotating credit, rather to manage payments seamlessly."

To keep credit utilisation low: Another reason to ask for a hike in credit limit is to keep credit utilization low. Ranjit Punja, CEO and co-founder Creditmantri says, "The right time to seek the credit limit is when you are utilising a large percentage of your credit limit like 70-75% of your credit limit. Or maximising your credit limit. It's a good idea to seek an increase in the credit limit on your card then."

Remember if you are using around 70-80 % of your credit limit, it's not seen as a good thing by the credit bureaus. Punja says, "Credit utilisation of under 50% has a positive impact on your credit score. If your credit utilisation is too high, it's a good time to ask for increase credit limit, so the credit utilisation falls to under 50%."

Remember, any credit increase request must be made only if you are a good borrower, pay your credit card bill every month in full and don't roll over any credit. Punja says, "You have to be cautious when you ask for a credit limit increase. You may feel as if you have incremental cash and might go overboard and if you are unable to pay, you will end in a debt trap."

When not to ask for a credit limit increase:

Recent loans: According to Mehta it is not wise to apply for a limit increase if you have recently (within two months) applied for any credit product. It will show the bureaus that you are desperately looking for credit or are credit hungry and will impact your credit limit negatively. The more credit or loan inquiries you make will bring your credit score down. Wait for a cooling off period of six to twelve months or so.

Too much-unsecured debt: Debt can be both secured like a home loan or an unsecured debit-like credit card or personal loan. Anubhav Jain, head of risk and co-founder Qbera.com says, "If you have too much of unsecured debt already, like a couple of credit cards, and a personal loan or so and if you go for an increase in credit limit on your card, the bureaus will see you as someone who is hungry for credit. Especially if you have a high unsecured debt as a percentage of your total debt." So in such a case, you should not ask for an increase in your credit limit.

Credit problem: If you are someone who is unable to handle credit well, you should stay away from asking for an increase credit limit. Ideally, if you are a credit junkie, there's a chance that the lender will deny you any credit as your credit score would be already poor. In such a case making a request for extra credit will simply work against you and decrease your score further.

When it could work both ways:

Traveling aboard: Should you request an increase in credit limit while traveling abroad? The experts we spoke to were divided in their opinion. According to some, if you are someone who is asking for an increase in credit limit to get credit, then don't ask for it. If you are taking it because using the credit card for convenience as compared to carrying cash, then you could go for a higher limit.

Some said that its okay to ask for an increased line of credit while traveling abroad even if it is taken for credit purposes and not just convenience, provided, you are 100% certain that you will be able to pay off the total amount the next month and not roll over. Else you might just enter a debt trap.

In short, if you are a good borrower and wisely ask for an increase in credit limit, it will work for you and help you increase your credit score. But, if you are a poor borrower, asking for an increase is a bad idea.