The Credit Card limit refers to the maximum amount you can spend using your Credit Card for any payment. It is also applicable for a Credit Card to Credit Card payment. The bank or Credit Card provider sets this limit. However, it is essential to note that exceeding this limit may result in over-limit charges or even a blocked card. For a good credit score, it is recommended that your credit utilisation ratio should be below 30%-40%.
Your credit limit is primarily affected by your income. It is essential to always stay within your credit limit and avoid overspending to maintain a healthy financial profile.
How is the Credit Card limit determined?
Determining the credit limit on a Credit Card involves a variety of factors. These factors include the applicant’s income, age, outstanding loans, Credit Card annual fee and repayment capacity. The applicant’s credit history and credit score are also important considerations.
For first-time Credit Card users, the credit limit is typically set low as the bank needs a prior record of their credit management. Over time, the bank may increase the credit limit of Credit Card to Credit Card payment based on the applicant’s credit management. Ultimately, the bank decides on credit and cash limits for Credit Cards.
Total credit limit and available credit limit
Understanding the difference in the total and available credit limits is essential. The total credit limit is the maximum amount that can be spent on the card and is set by the bank. If this limit is exceeded, the bank may levy an over-the-limit fee and prevent further spending on the card.
The available credit limit is the amount of credit available for spending after considering previous expenditures. For instance, if a Credit Card has a total credit limit of Rs 50,000 and the cardholder has already spent Rs 15,000, their available credit limit would be Rs 35,000.
Increasing the credit limit
Credit limit increases are at the bank’s discretion and are typically granted after a review of the cardholder’s credit management. Before increasing the credit limit, the bank will inform the cardholder of any additions and require their consent.
Cardholders can also request an increase if they have a sudden considerable expense or if their income has increased due to a job switch or a raise. It’s essential to always transact within the card’s credit limit to avoid additional fees and prevent further transactions.
Impact of exceeding credit limit
Making a transaction that exceeds your credit limit can have serious consequences. Not only will you be charged an over-limit fee, but it can also negatively impact your credit score. Additionally, utilising the over-limit facility can reduce your chances of getting approved for a loan in case of financial emergencies. Thus, monitoring your credit limit and staying within it is crucial to maintain a good credit score and financial health.
How Credit Card limits affect credit score
The credit score represents your credit behaviour which helps lenders determine your creditworthiness. Your Credit Card limit can impact your credit score as your credit utilisation ratio is calculated based on your credit limit usage. The lower your credit utilisation ratio, the higher your credit score.
Your credit utilisation ratio should be below 30%-40% to maintain a good credit score. For a good credit score, using your Credit Card limit wisely is essential. It can be achieved by minimising Credit Card usage, making timely repayments in full, finding alternative sources of income, and reducing additional liabilities.
How much credit limit can you use?
Understanding how credit limits work while using a Credit Card is crucial. If you have a low credit limit, you can work on increasing it. However, remember that a high Credit Card limit is an opportunity for a good credit score, not an option to overspend.
Also Read: What Is Credit Card Over Limit Fee?
Your credit utilisation ratio reflects how much of your available credit limit you use. A high credit utilisation ratio can make lenders perceive you as a risky borrower, negatively affecting your credit score and making it harder for you to get a loan. On the other hand, a lower credit utilisation ratio indicates good financial management skills and a decent hold on your repayment capacity.
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I am a passionate blogger. I love to share my thoughts and ideas through blog posting. Antonio Smith has five years of experience in Tech, Business, & Health. I am associated with thebusinessmantra.com, realbusinesswealth.com, globalbusinessjournals.com, reallandestate.com, businesswealthmagazine.com, topbusinessformula.com, decoimagination.net, decointeriordesigning.com, myinteriordesigning.com, realbusinesscommerce.com.