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What is Credit Card Limit – Learn Everything About It

What is Credit Card Limit – Learn Everything About It

C’mon, let’s confess it – credit cards have become an indispensable part of our lives today. We shop using a credit card with a certain credit card limit. We dine using a credit card. We travel using a credit card. And why not?? A credit card gives us the flexibility to shop and make payments without having the money to be debited instantly from our bank account – we can either pay the credit card bill in full at a later date or in EMIs.

However, one of the realities of using a credit card is its “limit” beyond which you cannot spend. The credit card limit is used to keep a brake on your purchases, so you can better manage your finances and not overspend that you cannot repay. The bank or financial institution sets the limit based on your repayment capabilities. If you are new to credit cards and wondering what the limit is all about, here’s everything you should know.

What is a Credit Card Limit?

A credit limit is the maximum amount that you can spend for purchases and payments using your credit card at any given monthly cycle. The bank or credit card company sets this predefined purchase limit primarily based on your income, repayment history, and credit score.

When you use the credit card, the amount of each purchase is deducted from your card limit; whatever you are left with is known as your available credit. So, if your credit card limit is ₹40,000, then you cannot spend beyond this amount. Suppose you have spent ₹10,000 on credit card payments and purchases; then your available credit limit is ₹30,000 for any given period.

If you go over this limit, your transactions may be declined or you may incur hefty over-limit charges. It may also impact your credit score. Therefore, it is crucial to understand what your purchase limit is and ways to increase your credit limit.

Factors Determining Your Credit Card Limit

Credit card companies and banks evaluate different factors to determine your credit card’s limit. These include:

  • Your monthly income is a primary factor that banks consider when determining your purchase limit.
  • Your credit score gives borrowers an idea of your credit borrowing and repayment behaviour.
  • If you have higher outstanding debts and credit card balances, it may impact your credit card limit.
  • Have you always paid your utility bills and other dues within the due date? If yes, you might be an ideal customer for higher credit limits.
  • The type of credit card you apply for is also a determining factor for your card limit.

Understanding Total Credit Limit vs. Available Limit

As you can understand, the total credit limit and the available credit limit are not the same. It is the maximum amount you can spend using the card. If you exceed this limit, your transactions may be declined, or the credit card company may levy an over-limit fee.

On the other hand, the available credit limit is the balance credit available on your card after deducting all your earlier credit card spending during any particular period. Let’s explain this using an example. Suppose you have a monthly limit of ₹130,000. This is your total credit limit.

During any given month, you spend ₹70,000 on online shopping, insurance premiums, utility bills, etc. using your credit card. So, your available credit limit will be ₹60,000. This is calculated by deducting your expenditures from the total credit limit. You can spend this ₹60,000 on your credit card during that month since your maximum limit is ₹1,30,000.

Does Your Credit Card Limit Affect Your Credit Score?

Your credit limit can directly impact your credit score, a crucial factor that lenders use to determine whether to issue you a new line of credit and the interest rate to charge. This is because your credit utilization ratio is an important determinant that goes into calculating your credit score.

The ratio indicates the amount of outstanding debt you have as a percentage of the total credit you are eligible for. To put it simply, it is the percentage of available credit you are using against the total credit limit you have. According to experts, you should keep this ratio under 30%.

So, if you have a bad habit of clinging to your bills and debt payments, beware! It can pull down your credit score significantly, which can affect your credit limit too. When you have a higher credit limit, you can spend more while maintaining a lower credit utilization ratio. This can positively impact your credit scores. But watch out!! Higher credit limits may also cause your debts to build quickly if you are unable to pay your credit card bills timely. This can have a negative impact on your score.     

How You Can Check Your Credit Card Limit Online?

Did your credit card agent not discuss the maximum limit you have on your card? Do not worry. There are various ways you can check your credit card limit.

  • Simply call the customer helpline number of your credit card company and follow the instructions to know the limit available on your card. You may need to provide your credit card details and other information to check your card limit. 
  • Another way you can check your card’s maximum spending limit is through Internet banking. Login into your bank’s online banking account and from the Credit Card section, you can check your limit.
  • You can also download the bank’s mobile banking app and log into it to check the maximum limit you can spend on your card.

Ways to Increasing Your Credit Card Limit

Banks and credit card companies keep a close watch on your credit card usage to determine if you are eligible for a higher limit. You should always make an effort for this because there are several benefits of increasing your credit limit.

  • A higher card limit can help you reduce your credit utilization ratio. And the lower your credit utilization ratio is, the higher will be your credit score.
  • Most credit card companies provide additional benefits and perks to cardholders with higher card limits. This can be in the form of exclusive privileges, reward programmes, or attractive discounts. 
  • A higher credit card limit may also be beneficial in case you face emergency situations such as hospitalisation or financial crisis.
  • You may also be a desired candidate for a loan if you have a higher credit limit and a lower credit utilization ratio.  

Now that you know the benefits, let’s dive into five ways of increasing credit limit.

1. Use your credit card prudently: One of the most effective ways to increase your limit is to use your credit card regularly but wisely. At the same time, you should ensure that your purchases do not exceed the current limit or your credit utilization ratio. The credit utilization ratio should be below 30%.

2. Pay your credit card bills diligently: If you make your credit card payments timely and regularly, the bank may increase the credit limit automatically. Regular payments showcase your intent and ability to pay off higher debt amounts.

3. Maintain a high credit score: By now you know that your credit card limit is directly linked to your credit score. So, maintaining a score above 750 may improve your chances of getting a higher credit card limit. But how can you increase your credit score, you’d be wondering. Check out these quick tips:

  • Review your credit reports regularly and report discrepancies, if any.
  • Pay off your bills and EMIs in a timely manner.
  • Clear your existing debts.
  • Limit your credit utilization ratio to 30% or less.   

If you manage to improve your credit score, increasing your credit limit will become a breeze for you!!

4. Keep control of your credit utilization ratio: As we discussed earlier, maintaining a credit utilization ratio of 30% or below can help improve your credit score. However, it can also help increase the limit on your credit card. Not using up the entire limit available on your card shows that you do not depend too much on your credit card for your purchases and expenses. This can work in favour of you and the credit card company may offer you a higher limit.

5. Submit proof in case your income increases: If you are a salaried individual, you may see a hike in your salary every 2-3 years. In such cases, you can show proof of your increased monthly income to the credit card issuer and request a higher limit. This also works for businessmen who are seeing higher profits. You can also submit proof of your passive income, fixed deposits, mutual funds, etc. to show your financial stability and ask for an enhanced credit card limit.

6. Apply for a new credit card: Another way of increasing your credit limit is to apply for a new card from another credit card issuer than your present one. If you have maintained a good payment history and credit score, chances are you can get a higher limit with your new card. But you must not apply for credit cards with different issuing companies at the same time. It makes you look “credit-hungry.” Too many credit inquiries may also negatively impact your credit score. Here we have mentioned practical ways to maintain a good credit score, hope you’ll find this guide helpful.   

Common Reasons Your Credit Limit Increase Request May be Denied

So, you are not happy with your credit limit and want to increase it. You submitted a request with your bank or credit card company, but they declined it. You might be pondering over why it happened.

Your credit limit increase request may be denied due to several reasons:

  • Poor credit score
  • You have a history of late and irregular payments
  • Inability to submit verifiable income sources
  • You have used up the entire limit available on your credit card
  • Too little credit history for banks to determine your creditworthiness
  • You have made too many credit inquiries recently

The Bottom Line

Credit card limit plays an integral role in shaping economic picture and opening up lucrative financial opportunities for you. Using the credit card as per your lender’s terms and not going over the limit can help you establish a positive credit history and increase your credit score over time.

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