Credit card is an important financial tool that provides financial assistance during the time of requirement. Holding a credit card offers you security against financial exigencies that might come up when you are financially weak or short of surplus funds. As credit cards are an important instrument, there is for sure a specific restriction based on usage. For example, every credit card comes with a predetermined credit card limit, which infers there is a credit limit through which you as a card user can spend money using your card.
Let’s go deep into understanding what a credit card limit is and how you can enhance your credit limit?
What’s a credit card limit?
As suggested by the name, a credit card limit is the limit of the maximum amount that you as a credit card user can spend using your card. Your credit card limit is determined by the card issuing company or the financial institution on a specific card. In simpler terms, on issuing a card to any user, the financial institution sets up the maximum limit over which you as a credit card holder cannot spend. However, note that there are few lenders that may allow you to go over the offered credit limit, but you will have to pay an overlimit fee for every time you swipe your credit card with an exhausted limit. Frequently going over the credit card limit may even lower your credit score drastically.
Thus, note that not just timely repayment of your credit card dues in full is important but maintaining a lower credit utilisation ratio too is necessary for a higher credit score. Still unable to understand? Read this example, to understand it better. For instance, suppose you hold an American Express credit card and always ensure to repay the American Express credit card payment on time usually after the end of every credit card billing cycle, i.e., days before the credit card’s due date. However, while you make the payment on time and in full, you always surpass your credit card limit. So, in this scenario, though you ensure to repay your dues on time and in full, still your credit score will dip owing to higher credit limit usage. Dip in credit score is owing to the fact that the issuer sees you as a credit hungry individual with a higher chance of defaulting in the future.
It is crucial to remember that your credit card limit is distinct for distinct kinds of credit card and for distinct credit card users. The credit limit defined by financial institutions and the kind of issued credit card is based on multiple parameters like your income, credit score, financial background, credit payment history, and others.
What are the parameters to define your credit card limit?
Credit card limit is defined by various parameters as follows –
∙ Your annual income
∙ Your age
∙ Your existing debt
∙ Amount of credit in your name
∙ Your employment status
∙ Your credit history
∙ Your credit score
Besides the above parameters, you must even remember that if you are placing an application for a credit card, then there are extreme chances that your limit on credit card would be very low. This is owing to the fact that the credit card issuer or financial institution does not know your credit history yet. However, you must even know that if you can manage your card well, and make repayments timely your card dues, then your credit limit might easily be enhanced.
Also Check: Credit Card Billing Cycle
How can you enhance your credit card limit?
As mentioned above, your credit card limit lies in your hands. In case you can manage your credit card prudently, there are very high chances that your limit would be enhanced. However, you might follow the listed practices to enhance your credit card limit –
∙ You might think to upgrade your card if you get a promotion, hike or increment in your existing income. More income would directly serve as a reason for higher credit card limits. For enhanced credit card limits, you must ensure to approach the issuer with higher salary slips.
∙ In case you ever think that you hold a reason to increase your credit card limit, then you should not shy away from it. If you connect with your issuer, then there are chances that they would enhance your credit card limit.
∙ Also, you can consider opting for a new card with a higher limit if you have a strong credit history.
∙ Most crucial thing that you should do to enhance your limit is to pay your card dues before time. If you continue paying your bills before the credit card due date, financial institutions would be impressed with your credibility and would enhance your limit.
Why must you consider increasing your credit card limit?
There are various reasons that may push you to work upon your credit health and enhance your limit. These include –
∙ Having a high credit card limit directly reduces your CUR (credit utilisation ratio), which in turn, enhances your credit score.
∙ If you hold a high credit card limit, financial institutions would trust your repayment potential very easily. This would enhance your chances of availing a loan.
∙ A high credit card limit solves the major purpose of holding cards i.e., it provides the required finances during emergency scenarios. If you hold a high credit card limit, then it means that you can avail a high credit amount and help yourself when you need the funds the most.
∙ There are many issuers that provide different types of perks and add on benefits to you if you have a high credit card limit. One such benefit is availing a loan against a credit card of a higher amount becomes easier in times of financial emergencies.
You have full access to your credit card limit; thus, it is upon you to manage your credit card limit as per your credit repayment capacity. Ensure to keep the usage within 30 percent of your credit utilisation ratio. Doing so would create a positive impact on your credit score. Also, as you can use your entire credit limit, opting for a higher limit would enhance your capacity to borrow against your credit card in times of urgent monetary requirements.
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