A credit card is an important financial tool that provides financial assistance at the time of requirement. Having a card offers security against any exigencies that might come up, even when you have no cash or any surplus funds. As credit cards are a useful instrument, there are specific restrictions on their usage. For example, every card has a predetermined credit card limit. This means there is a credit limit through which you can spend money using a credit card.
Let’s go deep into what a credit card limit is and ways how to enhance your limit.
What is a credit card limit?
As the name suggests, the credit card limit is the limit to the highest amount that you can transact using your card. The credit card limit is determined by the issuing company or bank on a specific card. In other words, on issuing a credit card, say Yes Bank credit card, the Yes Bank issuer will check your Yes Bank credit card eligibility before approving your card application. Based on the eligibility, if approved, banks will set up a limit beyond which you cannot spend. In case you spend over the set limit, then an over-limit charge is levied.
It is crucial to remember that the credit card limit is distinct for distinct kinds of credit cards and for distinct cardholders. The limit that is defined by banks and credit card type issued to you depends upon various parameters like your income, credit score, financial background, credit repayment history etc.
What are the crucial factors that define a credit card limit?
A credit card limit is defined by several parameters as explained here-
∙ Your annual income
∙ Your age
∙ Current debt
∙ Credit account in your name
∙ Your employment status
∙ Your credit history
∙ Your credit score
Besides these listed parameters, you must even note that if you are placing an application for your first credit card, there are high chances that your limit will be relatively low. This is because the credit card issuer or bank lacks information about your credit history, which is crucial in setting your credit card limit. However, also you must know if you manage your card well and timely make the payments of your credit card dues, then your limit might be enhanced easily. Thus, besides a few major factors, your limit depends upon you.
How can you enhance your credit card limit?
As explained previously, your credit card limit depends on your hands. If you manage your card responsibly, there are extremely good chances that your limit will be enhanced. However, you might require following the listed practices to enhance your limit –
∙ Using your card periodically for making transactions and for paying your bills is one of the crucial things you must do to enhance your credit score, which would eventually enhance your credit card limit.
∙ You might opt for upgrading your card if you get the promotion or hike in your salary. Higher income would serve as a major reason for enhanced credit card limits. You should approach your issuer with the latest slips for the same.
∙ In case you think that you have a good reason to increase your credit card limit, then you must surely not shy away from reaching your bank for this. In case you connect with your bank, there are high chances that they would factor in your request and enhance your limit.
∙ Also, you can consider availing of a new card, which would have a higher limit as you now have an excellent credit history.
∙ One of the most crucial things you must do to enhance your limit is to pay your outstanding credit card bills on time. If you continue paying your card dues by the due date, financial institutions would be highly impressed with your credibility and would enhance your credit card limit.
Why should you consider enhancing your credit card limit?
There are several reasons that push you to work for better credit health and enhance your limit. Mentioned here are some of the reasons –
∙ Having a good credit card limit directly reduces your CUR (credit utilization ratio), which in turn enhances your credit score.
∙ In case you have a good credit card limit, lenders and banks would trust your credit repayment potential very easily. This would enhance your chances of availing of a loan.
∙ A high limit on your credit card directly solves the major purpose of you having a card to meet emergencies. In case your credit card limit is high, this means that you can avail a high credit amount to assist yourself in the event of need.
∙ There are many credit card issuers that provide different types of perks and benefits to the card users having a high credit card limit.
A card user’s credit card limit lies in your hands. If you conduct regular payments of all your dues and use your card frequently, then you can upgrade your current card to a better one to enhance your credit card limit.
What is a credit card limit?
A credit card limit is a limit to the maximum credit amount that you are allowed to spend through your credit card. The limit is determined by the card-issuing bank or company on a specific credit card.
What parameters determine your credit card limit?
Various parameters like your annual income, your age, current debt, employment status, credit score and credit history determine your credit card limit.
Who determines your credit card limit?
Credit card issuers determine the credit card limit of every holder.
What happens when you surpass your credit card limit?
If you surpass your credit card limit, your transaction may be declined. In case your transaction is not declined, then an over-limit penalty on your card is charged.
How does an increment in your limit impact your credit score?
In case your credit card limit enhances, your score also increases. This is because your credit utilization ratio (CUR) falls. You can conduct your credit score check online by approaching the online financial markets to fetch your credit report for free.