Adding power to your credit

As credit card interest rate is high, opt for higher limits on a transaction basis

Siddhi Mishra’s credit card limit has been enhanced for the third time in the last two years. And, each raise has left this spendthrift quite elated.

Mishra’s initial credit limit was Rs 20,000, but high usage and a good payment history saw her bank increasing the limit to Rs 50,000 in the first year itself. And now, she boasts of a limit of Rs 1.5 lakh, giving her a lot of leeway to spend.

“Since I have to repay over 45 days, I prefer using the card quite freely. Several times, I have completely exhausted the entire credit limit of Rs 1.5 lakh,” says Mishra, while admitting that the bank’s continued benevolence and her lack of disciple may soon lead her to a debt trap.

GET SMART

Procedure: Present copies of one-three months’ salary slips, credit card and savings account statement. Bill of a second credit card (with higher limit), in case bank refuses an enhancement. 
Cost: High interest loan of up to 40 per cent if not repaid on time.
Precautions: Assess repayment capability and income flow before opting for it. 
Lowering credit limits: Written applications asking the bank to go back to the original limit

Typically, banks review the customer’s income and credit history every six months or one year. Accordingly, they will increase your credit limit on the back of your present income, repayment history, and in some cases, income tax returns. The frequency of card usage, if often, can be an added advantage because it reflects your comfort with credit.

An offer to increase credit limit is, however, at the customer’s discretion. Bankers say risk-averse individuals avoid regular credit limit enhancement. “Many in the high income bracket decline such offers because they don’t need them,” cites Shyamal Saxena, head – retail banking, Standard Chartered Bank.

Alternatively, as a customer, you can approach the bank asking for a higher limit permanently or temporarily, when required. The card limit can be increased by 15-20 per cent for a period of two-three months, provided you fit the eligibility criteria for it, such as credit history and income level.

Temporary credit enhancements are generally requested on a transaction basis, say bankers. For instance, cardholders, who are travelling abroad and have already used their credit limit, can seek a higher credit limit for paying air tickets or hotel bills.

Even young professionals or couples getting married or planning a family can seek a higher credit limit, say bankers. In such cases, it is advised to take an additional or add-on card. The extra card is issued on a request by the main cardholder and the liability is borne by him/her. The overall credit limit, however, will remain the same on all cards put together. You can also restrict the credit limit on the add-on card to control the usage.

If your bank isn’t allowing an enhancement, a higher credit limit on a second credit card can come to your rescue. For instance, if Bank A isn’t allowing you to increase your credit limit, but Bank B already gives you a higher credit limit, you can produce Bank B’s card bill to Bank A as proof of your eligibility for a credit enhancement.

But some banks may not offer usage-based credit enhancements. Says a senior official from Canara Bank, “We do not offer a usage-based credit limit enhancement as credit cards are used to the last penny.”

Bankers caution that one must opt for a permanent increase only if one can afford paying the higher bills. Credit cards charge up to 40 per cent interest, higher than any other loan. They suggest requesting the bank to put you back on the original credit limit unless really required.