Most of you must have come across the term “credit limit” if you are an active Credit Card user. The Credit Card limit refers to the uppermost amount that a Credit Card holder can charge to their card. The issuer predetermined this limit based on factors such as the cardholder’s credit score and payment history.
It is essential to remember that exceeding this limit can lead to penalties and increased interest rates. Credit Card companies review and adjust the limit based on your creditworthiness and spending patterns. It is wise for individuals to maintain responsible Credit Card usage and monitor their spending to avoid any negative consequences.
How do the lenders set your credit limit?
Credit Card issuers consider several factors to determine the credit limit granted to an applicant. These factors include the applicant’s income, age, outstanding loans or liabilities, repayment capability, credit history, and credit score. The type of Credit Card issued may also impact the credit limit.
First-time Credit Card users are granted a lower credit limit as the issuer has no prior record of their credit management. The credit limit may be increased based on the individual’s creditworthiness and how they manage their credit. Ultimately, the Credit Card issuer has the final say on the recognition and cash limits assigned to a Credit Card account.
What is the total credit limit and available credit limit?
The total credit limit is the maximum amount a Credit Card holder can spend on their card, as determined by the issuing bank. This limit is absolute, meaning any spending beyond this limit will be declined, and the bank may charge an over-the-limit fee.
On the other hand, the available credit limit is the remaining balance available for spending on the card after deducting the amount spent from the total credit limit.
Suppose your card has a total credit limit of Rs. 1,00,000, and you have already spent Rs. 15,000. Your available credit limit would be Rs. 85,000. It is essential to monitor this limit to avoid overspending and ensure enough credit is available for future purchases.
How does the credit limit affect your credit score?
Your credit score is a numerical representation of your credit history used to evaluate your creditworthiness. The higher the credit score, the more creditworthy you are, and vice versa. Your Credit Card usage impacts your credit score, as the credit limit and utilization are reported monthly to credit bureaus. Your credit utilization ratio is calculated based on this data.
To maintain a high credit score, it is essential to use your Credit Card limit wisely and keep your credit utilization ratio within the range of 10% to 30%. Higher credit utilization can lower your credit score, so it is crucial to use your Credit Card limit responsibly.
Many individuals ask, “can i transfer money from credit card to bank account?” To answer that, you can, but we advise you to minimize Credit Card usage daily. It would help if you also made regular monthly repayments in full and on time, found alternative sources of income, and decreased additional liabilities. Following these guidelines, you can manage your Credit Card usage and maintain a high credit score.
How to increase your credit limit?
To increase your credit limit, you can take the following steps:
Use your Credit Card wisely: Using it regularly but staying within the credit utilization ratio is essential. Keeping your credit utilization ratio below 30% is advisable.
Request a credit limit increase: You can request a credit limit increase by contacting your bank via net banking or visiting the nearest branch. Banks usually agree to increase credit limits based on the reason provided.
Pay your bills on time: If you make regular and timely Credit Card payments, the bank may automatically increase your credit limit.
Apply for a new Credit Card: You can also apply for a new one with a higher credit limit than your current one.
By following these steps, you can increase your credit limit and have greater spending power on your Credit Card. If you are searching “How can I transfer money from Credit Card to bank account?”, Moving it to your UPI wallet is the easiest method.
To ensure the responsible use of your Credit Card, it is crucial to adhere to your credit limit and make timely bill payments. Avoid withdrawing cash on your Credit Card whenever possible. It is highly recommended to pay your bills in full each month and not carry forward any balance to the next month, as this can result in interest charges and negatively impact your credit score. Adopting such practices allows you to maintain a favorable credit profile and avoid financial burdens associated with Credit Card usage.