In August 2025, Paisabazaar released a report titled “How India Checks Credit Score”. The report provides insights into India’s most credit-healthy cities (Delhi and Pune), individuals with the highest credit score in the country (861), individuals with the longest credit history (23 years), etc. The 30-day survey attracted participation from 4.7 million individuals from 710 cities. The huge participation from so many cities in a short span of 30 days highlights the importance individuals place on their credit scores.
These days, most individuals consider the impact of any credit decision on their credit score, given its importance. One such decision is whether an individual must accept an increase in their credit card’s credit limit. In this article, we will understand what an increase in credit limit on a credit card is, when a bank offers it, you should accept it and its impact on the credit score, etc.
What is an increase in the credit limit on a credit card?
Most credit cards come with a specified credit limit. A credit limit is a specified amount up to which an individual can use the credit card in a billing cycle. Some banks may allow an individual to exceed the credit limit. However, they may charge an overlimit fee.
For example, an individual has a credit card with a credit limit of Rs. 5 lakhs. In this case, the individual can use the credit card for transactions of up to Rs. 5 lakhs in a billing cycle. Once the monthly bill is generated and the individual pays it, the credit limit is replenished.
An increase in credit limit occurs when the bank makes an offer to revise the credit limit upwards. For example, a bank offers an individual to increase the credit limit on their credit card from Rs. 5 lakhs to Rs. 6 lakhs.
When does a bank offer an increase in credit limit?
Banks regularly review the credit card usage of their customers. When a bank observes that a customer is repaying the credit card monthly bill regularly on time, it may decide to reward the customer with an increase in credit limit.
An offer to increase the credit limit is usually referred to as a credit limit enhancement. Every bank has its own process for offering credit limit enhancement to its customers. Some banks may make credit limit enhancement offers once in 6 to 12 months. Apart from the customer’s repayment track record, the bank considers the individual’s income, existing loans/credit lines, debt-to-income ratio, age, etc., to decide on the credit limit enhancement offer. The bank will consider the overall macro situation in the economy before deciding to roll out credit limit enhancement offers at a portfolio level.
Should you accept a credit limit increase offer?
Yes, you may accept a credit limit increase offer from a bank. An increase in the credit limit and the same monthly expenses bring down the credit utilisation ratio. The credit utilisation ratio measures the percentage of credit used from the overall credit available.
For example, you have a credit card with a Rs. 5 lakh credit limit. Suppose you use the card for Rs. 1,00,000 every month. In this case, your credit utilisation ratio will be 20%.
Impact of accepting a credit limit increment on credit score
Accepting a credit limit increment offer on a credit card doesn’t impact your credit score directly. The impact on the credit score is through the credit utilisation ratio. “A lower credit utilisation ratio generally indicates responsible credit behaviour and financial discipline”, said Aalesh Avlani, Co-founder, Credit Wise Capital.
Continuing with our above example, suppose the bank offers to increase the credit limit from Rs. 5 lakhs to Rs. 6 lakhs. You accept the increase in credit limit and continue using the card for Rs. 1 lakh every month. After the credit limit increase, your credit utilisation ratio will fall to 16.67% from the earlier 20%.
Credit information companies (CICs) use the credit utilisation ratio as one of the parameters in the algorithm for calculating an individual’s credit score. A credit utilisation ratio of 30% or lower is considered good and contributes towards improving an individual’s credit score.
When an individual’s credit card limit increases and the monthly credit card usage amount remains the same, the credit utilisation ratio goes down. A credit utilisation ratio of 30% or less contributes towards improving an individual’s credit score. So, an increase in credit limit can help you improve your credit score. “Lenders view a lower utilisation ratio as a sign of better credit management and reduced repayment risk”, adds Aalesh.
How to decide on accepting a credit limit increase offer?
An individual must calculate their credit utilisation ratio. If your credit utilisation ratio exceeds 30%, you must accept the credit limit increase offer. It will help lower your credit utilisation ratio, provided your monthly card usage amount stays the same. A lower credit utilisation ratio will contribute towards improving your credit score.
Can an individual decline a credit limit increase offer? Yes, an individual has the option to decline the credit limit increase offer. When an individual declines a credit limit increase offer, it doesn’t impact their credit score in any way.
Is there any downside to accepting a credit limit enhancement?
For some individuals, a higher credit limit may lead to some unwanted expenses. With higher monthly expenses on the credit card, sometimes, the individual may find it difficult to repay the monthly bill on time. Any repayment defaults will damage the credit score. A repayment default will lead to a big fall in the credit score.
The bank will levy late payment fees and interest charges on the outstanding amount. Banks usually charge up to a 3.5% monthly interest rate on the outstanding amount. The payment default will reflect in the credit report, making it difficult to get new credit cards and loans in future.
Hence, when accepting a credit limit enhancement offer, make sure you use it judiciously, only for needs. Also, make sure you repay the entire monthly bill before or by the due date.
How to get a credit limit enhancement when the bank is not offering it?
In some cases, a cardholder may be making timely repayment of credit card monthly bills, and the bank may still not offer a credit limit enhancement. The current credit limit may be lower than your requirement, resulting in a credit utilisation ratio higher than 30%, impacting your credit score.
You may be wondering what you should do in such a case. If your salary has increased recently, you may share the revised monthly salary slips with the bank and request a credit limit enhancement. The bank will consider your request and may offer a credit limit enhancement.
The other option is to take a secured credit card. It is issued against the security of a fixed deposit. Banks usually offer a credit limit ranging between 75% to 100% of the fixed deposit amount.
Can a bank decrease the credit limit? What is the impact on the credit score?
So far, we have discussed how a credit limit enhancement can help you improve your credit score, provided your monthly expenses stay the same. However, at times, the bank may decrease the credit limit on the credit card. Although the instances of credit limit reduction are rare, it is possible.
At times, the bank’s systems may flag a change in the financial behaviour of a particular cardholder, signalling financial stress. In such a scenario, the bank may reduce the credit limit as a precautionary measure. At a macro level, if the economy is going through a difficult financial phase, the bank may reduce the credit limits of several cardholders at a portfolio level.
The reduction in credit limit doesn’t directly impact an individual’s credit score. However, if the credit utilisation ratio exceeds 30% due to a credit limit decrease, it will impact the credit score adversely. “A higher credit utilisation ratio signals increased credit dependence, which credit scoring models consider risky”, adds Aalesh.
Let us continue with our earlier example. You have a credit card with a Rs. 5 lakh credit limit, and you use the card for Rs. 1,00,000 every month. In this case, your credit utilisation ratio will be 20%. Suppose the bank reduces the credit limit to Rs. 3 lakhs, and you continue using the credit card for Rs. 1 lakh every month. In this case, your credit utilisation ratio will increase to 33.33%.
As the credit utilisation ratio is above 30%, it will contribute towards impacting your credit score adversely. The higher the credit utilisation ratio is above 30% and the longer it stays there every month, the more it will impact your credit score negatively.
So, whenever a bank reduces your credit limit, calculate your credit utilisation ratio to check whether it exceeds 30%. If yes, take corrective action to protect your credit score.
Have you got a credit limit enhancement recently?
If you have received a credit limit enhancement recently and are wondering whether to accept, you may go for it. It will help you reduce your credit utilisation ratio, provided the monthly expenses remain the same. A lower credit utilisation ratio will contribute towards improving your credit score. However, make sure you don’t use the higher credit limit to splurge on things you don’t need. If you splurge and are unable to repay, it will ruin your credit score.
Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached on LinkedIn.
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