A credit card can be a powerful financial tool. Having the ability to pay for our wants and needs with just one swipe is convenient and, if used correctly, helps build good credit.

Before you consider a credit card limit increase, it’s important to figure out whether you’re in a good financial position to add more spending power. If you’re good at budgeting, a bigger credit card limit can give you more room to cover a financial emergency, earn you more rewards points, avoid overlimit fees, build your credit history and allow you to make larger essential purchases. If you sometimes struggle to stick to a budget, a lower limit can help you keep your balance clear and avoid non-essential spending. But, there are also good and bad times to consider a credit card limit increase.

So how do you know whether changing your limit makes sense? Let’s go over everything you need to know about credit card limit increases and how credit card limits work.

What is a credit card limit?

First off, it’s important to understand what a credit card limit is and how it impacts your spending habits. A credit card is like a revolving line of credit that lets you borrow money continually up to a certain amount. The amount you’re qualified to spend is your credit limit. Most credit card providers will penalize card holders who go over their limits.

How do providers determine your limit?

Generally, there are a few key factors that help determine what an appropriate credit card limit is for an account holder. Income and credit score are the two biggest factors. Card providers might also look at income-to-debt ratio, other lending products held, length of credit history, and how many times you’ve applied for credit within a certain time period. Each financial institution uses different considerations to set limits, but the most common indicator is a credit score.

Making loan, phone and credit card payments on time will help you develop a higher credit score. A higher score makes you a lower risk to a lender, which means you can access a higher credit card limit. If you have late or missing payments, or you’re currently deferring loan or credit card payments, this can result in a lower credit limit. You can see your credit score for free by using Equifax or TransUnion.

How can you increase your credit card limit?

There are a few ways to increase your credit card limit. First, you can visit your local branch and request an increase. Second, you can call your creditor or financial institution and ask a customer service representative if you’re eligible for an increase. Depending on your credit score, you may be pre-qualified for an increase, which you can choose to accept.

Before you do any of this, though, you should first ask yourself whether you can manage an increase, or not.

Should you increase your credit card limit?

Sometimes you might receive an offer for a credit card limit increase from a card provider. How do you know if it’s a good idea to consider a credit card limit increase? The most important step is to be honest with yourself and your current financial standing.

Before you accept any increase, consider how you manage your credit right now. If you’re struggling to make payments, continually carry a balance on your credit card, or can only make the minimum payment each month, it might not be the right time to seek a credit card limit increase.

On the flip side, if you consistently make monthly payments, keeping no (or a low) balance on your card, and you’re budgeting responsibly, it might be an excellent opportunity to increase your limit.

Ask yourself the following questions before accepting or asking for a credit card limit increase:

• What is my current financial standing? (Remember to be honest with yourself.)
• How much am I spending each month?
• Am I capable of consistently paying my bills?
• Have I applied for any other credit or debt recently?
• What benefit will the increase in limit give me?

The impact of a higher limit on your credit score

Although increasing your credit limit does not hurt your credit score, it could lead to an increase in spending.

If the credit card limit increase is pre-approved, it could improve your credit score. Remember, a larger limit doesn’t mean you need to spend more money. Instead, it can create more room for emergencies. If you’re confident that you can manage the increase, it’s worth accepting. If you think you will spend more money and be unable to repay the debt, it’s okay to decline the offer, too.

If you have multiple credit cards, you might wonder which card’s limit to increase. Consider potential rewards points, interest rates in case of balance carry-over, and how long you’ve had the card. If it’s an older credit card with a good credit history, it might be the right choice. However, if you like to travel and have another card with travel rewards points, perhaps that is the right decision.

How to use your credit card responsibly

Your credit card, like any financial tool, should be used responsibly. What does this mean? Simply put, it means living within your means, making regular payments, and not going over your limit. If you exceed a credit limit, your card will likely be declined and, in some instances, can incur penalties. It’s important to know what limitations and restrictions you have before you begin using your credit card

In the end, the most important consideration is a realistic look at how much money you need and how much of a limit you can use responsibly.

If you would like to increase your credit card limit or see if you have been pre-approved for a limit increase, contact our Customer Care Centre at 1-800-332-8383 or visit your local branch.