All You Need To Know About Credit Card Limit - Criteria, Benefits, Utilization

Nowadays Credit Cards are a common thing and almost every employee or businessman, we can give this credits to Big Billion Days of the popular shopping sites. 

What is Credit Limit of Credit Card 

You hold a credit card! but do you know how much money you can avail as credit from your credit card? This is something which is called as credit limit and this is the maximum balance the issuer of the card allows you to avail within a billing cycle. Have you ever thought why and how that limit is set for you? The bank sets a credit limit just to control the number of purchases you can make using the credit card. The purpose of setting a credit limit is to help maintain a good credit score. Credit limit offered varies for different customers.

How Do Banks Determine Credit Limit?

It may be noted that Banks conduct an entire due diligence process before determining the credit limit of a customer. The process involves checking credit history, income, pending loans and limits on other credit cards if any.  Below are some of the criteria which bank consider for deciding your credit limit 
  • Your monthly income—If your income changes drastically from year to year, this could change the issuer's decision. Again, if you salary changes (or if your marital status changes and impacts your income), the issuer should be notified.
  • Your credit history and worthiness—Have you had low or high credits before? Have you kept zero or low balances on previous credit cards? This could impact the application status.
  • Your relationship to the issuer—If you’ve been banking with them for years or have another card from them, this could help get you approved and issued a high credit line (but only if you’ve proven to be a reliable customer).
  • Your employment status—This may or may not make a difference, but the issuer would like to know if you are part-time, full-time, self-employed, or unemployed, as this could affect your ability to pay off your future balances.
  • Your residential status—If you own a home and pay a monthly mortgage, you will likely be able to pay monthly credit card bills, too.
  • What type of card you’re applying for—Are you applying for the card with the highest rewards, but you have low credit? Make sure you’re being realistic when you apply for a credit card, but don’t sell yourself short either.
It is worth mentioning that the pre-determined credit limit significantly helps you in maintaining a good credit score, provided you do not default on your payments and clear more than the minimum payment due every month.

Maintaining a good credit score is not that hard if you can balance out your credit usage. You have to keep this in mind: If you have less expenditure, then you can go for a single credit card but if your expenses keep rising, you should opt for two to balance it out and pay lower interest. 

Increasing Your Credit Card Limit

Having your credit limit increased feels a little like getting a promotion or raise on your job. While not exactly as monumental, it’s still a big moment in your credit life, especially if you're new to credit or rebuilding a bad credit score. An increase in your credit limit feels like a thumbs up, letting you know you’ve been a responsible adult with your credit card spending.

Higher credit limit eligibility criteria

In order to be eligible for higher credit limit, there is no short-cut: You have to maintain a good credit score, which is reflected by your spending and repayment history. When opting for a credit limit increase, you have to ensure that the amount is not more than three times your monthly salary. Also, it is ideal if your utilization is not more than 30 percent of the total credit limit.

As mentioned earlier, if you have a high credit utilization, then you should opt for multiple credit cards rather than paying shrilling interest on one card.  

Should I Ask For a Higher Credit Limit?

If you believe the credit limit you were assigned is too low, you can call the credit card issuer and ask for a higher one. It helps if you can justify your request with some information the issuer did not have when you applied. It’s smart to consider that your credit limit can also be lowered if you give your lender reason to believe you may not be able to handle your current limit, but if you've made your mind to increase your credit limit; here's how to go about getting a credit limit increase, and raising your credit score. Credit limit can be increased either by bank or raising request by you.

Automatic Credit Limit Increase

Some credit card issuers will increase your credit limit automatically as you demonstrate you can handle credit responsibly. That means charging only a percentage of your total credit limit and making your payments on time each month. Many credit card issuers review accounts periodically and automatically raise the credit limit for cardholders who meet their criteria.

Requesting an Increase From Your Card Issuer

While some credit card issuers automatically increase your credit limit, others only do so upon request of the credit card holder. For starters, call the toll-free number (either posted on the back of your card or on your monthly bill) and listen to the prompts—there may be a prompt for requesting a credit limit increase. If not, choose the option to speak to a customer service representative and ask for an increased credit limit. You may also be able to request a credit limit increase online.

When you request a credit limit increase, the card issuer will likely ask for some information to process your request. For example, they may ask for your monthly income, how much you would like to have your limit increased to, and the reason for the increase.

However, if your credit standing is good, with enough income to support a credit line increase, you may find out immediately if your request has been approved. If not, the card issuer will notify you a few days later, usually via mail.

Why You Need Higher Credit Limit?: Benefits

  1. Lower credit utilization and higher credit score: One huge advantage of having higher credit card limit is the fact that it can lower your credit utilization ratio if used judiciously. Lower credit utilization can help you improve your credit score. For example, assume you have a credit card with a limit of Rs. 10,000 and you utilize around Rs. 5,000 each month on average. This means you are utilizing half the available credit. So, your credit utilization ratio is 50%. Now, if your bank increases your credit limit to Rs. 15,000 and you keep your spending constant at Rs. 5,000, then your credit utilization ratio reduces to 33.33%. This means you are spending way less than the credit access you have, which implies you are financially secure and less likely to default. All these augur well for your credit score.
  2. The possibility of higher loans: If you seek a retail loan with the same bank or any other bank, you can use your higher credit limit to negotiate for a better package. Banks are very careful about offering higher credit limits to card owners; therefore, a high credit limit implies that the bank considers you a safe asset. You can use this as an advantage and seek a higher quantum of a loan from your bank.
  3. No need for multiple credit cards: Having a single credit card with a high credit limit is always better than having multiple credit cards with lower credit limits. You will need to track only one card and utilize it as per your needs. This way, you are less likely to miss your payment deadlines. Needless to mention, you save on extra charges like annual fees for the other cards. 
  4. Helpful in financial emergencies: When faced with a financial emergency, a credit card with a high credit limit can come to your rescue. Instead of borrowing money from family or friends or opting for a loan, your credit card can come in handy. You can also get higher personal loans if you have a higher credit limit.
  5. Higher rewards: The higher the credit limit of your card, the more desirable a cardholder you are for the bank. Banks reward their premium cardholders with extra reward points and added benefits. So, with a higher credit limit, expect more reward points coming your way.
Hope you like information about Credit Card Limit, we shall have upcoming articles on how this can impact on your Credit Score. 

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