Is your growing business in need of credit expansion? Does the current limit no longer fit your business needs? Do you require more from your existing corporate credit card?
If you decide the current corporate credit card limit does not satisfy all your business needs, you might have to request a credit limit increase.The lender’s decision to either reduce or increase your card’s limit depends on how well the card has been utilized. A delay in payment or a maxed-out card can reduce the amount of money assigned to your credit card. But successfully paying bills and maintaining a good history of card usage can help you increase your corporate credit card limit.
In this article, we will see the factors that influence the increase in your credit limit. We will also discuss the pros and cons of a higher limit. Additionally, we look into some methods you can use to boost your chances.
Factors that credit card providers use to decide increase in credit limits
When a request for a higher credit limit is placed, the corporate credit card providers evaluate your creditworthiness. A higher limit would mean a larger amount of borrowed money. This is how a credit card issuer would assess if your business can handle a larger responsibility. The more your company looks like a responsible borrower, the greater are your chances.
Let us look at the factors that help the credit card providers to review your request:
- Credit report
A credit report is a detailed breakdown of the corporate card’s usage. It is a unique credit report provided by a credit bureau. Credit bureaus are an agency that collects financial details about the company and its paying habits. This is done to help the lending institution and credit card issuer to make a lending decision.
The report provided by the agency includes the company’s business background and financial information. It also includes credit scores and the company’s borrowing and paying history.
- Credit score
Lenders and creditors require means to identify whether your business can repay the borrowed money or not. This is where credit scores come in.
A business credit score generally ranges from 0-100. Your business scores provide an impression to the lender if bills can be paid on time. The higher the score, the better the impression. A higher rating can be maintained by paying bills on time and keeping debt low over a period of time.
Pros and cons to consider before increasing credit limit
Increasing the credit limit helps a company gain access to more capital. But a more substantial credit card limit can create higher debt risk. The following pros and cons of a higher credit limit should be taken into consideration.
Pros of an increased credit limit
- More purchasing power
A higher credit limit can undoubtedly give you access to a bigger capital. This can help your business to make more significant purchases. A corporate credit card with a higher limit can also increase the frequency of purchases.
- Acts as an emergency spending cushion
Sometimes, you might have to make a purchase that is more than your typical purchasing capacity. A higher credit limit can provide your company with an extra helping hand to make such emergency expenses. Higher credit helps you with resources that you can’t pay off, immediately.
- It can increase credit score
Increasing the credit limit can naturally increase the credit score for your business. This is because the card utilization ratio also decreases. A higher utilization ratio can indicate the credit card bills are not paid in time, and there’s overspending.
Pro-tip: The card utilization ratio is expressed in percentage. It can be obtained by dividing your total credit balance by the available credit limit.
- Increase in rewards
If you consistently pay off your balance and on time, it will help you to earn more rewards. Making full use of the corporate credit card and paying on time won’t cost you anything but it can help you reap rewards. The rewards you cash in can help you reduce expenses on hotels, airfare, supplies, etc.
Cons of an increased credit limit
- Bigger risk of increasing debt
More expenses mean more bills to pay. Getting a higher credit limit can help you make more expensive purchases. But bigger pending bills can only increase your debts towards the lender. If your company is unable to keep with the large expenses, it can possibly drive the business towards losses.
- Higher interest
A higher lending price means the interest value is higher, as well. Any pending payment from the previous billing cycle is charged with interest until repaid. If you habitually carry balances in each period, the interest can rack up. This can cause you to pay more in addition to your principal amount.
3 ways to boost your chances to increase your credit limit
The decision to increase the card’s credit limit lies in the hand of the credit card providers. But you can increase the probability of getting it approved. Maximizing credit score, being financially responsible, and carefully monitoring your card activity can boost your chances.
Here’s how you can raise your chances to get approved:
1.Work on your credit score
We know lenders look at the corporate credit card score to make business decisions. Credit card scores are an impression of your payment history and debt level. A low credit score can instantly put them off and make your business look unreliable. Making on-time payments and avoiding long-term payment of debts can affect your credit score.
Maintaining a number of accounts can be used as an added advantage to work on your credit score. Having multiple lines of credit with a perfect history of payments can project that your company is serious about its finances. Thus, the credit card provider also develops a sense of trust after looking at your good credit score. Also, consider using a credit repair business software to monitor and manage your credit health, making the process even more efficient and automated.
2. Pay off your debt
Having an outstanding balance is seen as a risk for the credit card provider. This stands, even if you plan to avoid interest charges by making the payment each month. This causes a concern for the creditors as this exposes them to losses.
Therefore it is wise to clear off debts before applying for a limit increase. A credit report reflects all the company’s debt and outstanding credit card balances before the cycle closes. Even if your company is unable to pay off everything in full, eliminate debt as much as possible before the statement cycle closes. The credit report will have less to show even if there’s a pending debt. This will increase your chances of getting approval for a higher credit limit.
3. Regularly check your credit report
A credit report plays a central role in the lender’s decision as well as for your business’s growth prospects. A credit report dictates the approval or denial, terms of repayment, interest, and terms of debt financing. Ensure you handle this process with care, as a bad credit report can reflect poorly on your company.
1. Take time to check your credit report and see if there’s any room for improvement.
2. It is advisable to obtain a credit report from the credit card bureau every 6 months.
3. In case there are any errors, inaccuracies, or outdated information, contact the agency to make the appropriate changes.
4. Mistakes can happen with credit card bureaus, as well. Monitoring your credit report regularly can help to maintain the company’s reputation and keep it in good standing.
How can an expense management software help increase your credit limit?
Increasing the credit limit for your corporate credit card revolves around effectively managing your card history. By now, we have already established how missing bill payments and late payments can put a dent on your credit history. We have also seen how it reduces your chances of getting a hold on higher-powered credit cards.
Additionally, juggling multiple cards can prove to be a challenge. As your company continues to grow, not only will you have to manage numerous cards but also have to take care of bill payments. Making timely payments, as discussed, thus becomes a deciding factor for your credit report and score impression.
This is where an automated expense management software comes into play. Take the help of an expense management software for seamless credit card management and expense reporting. Additionally, an automated software like Fyle comes with expense management features custom-designed keeping the modern employees and finance teams in mind. Our mission is to help you easily manage multiple cards so that you can focus on improving your overall expense reporting processes.
Schedule a demo with Fyle today to learn how you can seamlessly manage and streamline your expense management processes with ease!