Posted by The world of credit cards is a constant companion in our lives, providing much-needed financial flexibility. However, with great power comes great responsibility—understanding your credit card limit is crucial.
This comprehensive guide aims to demystify the concept of credit card limits, how they are determined, and their impact on your financial health.
What is a Credit Card Limit?
A credit card limit is essentially the maximum spending threshold set by the financial institution or bank that has issued your credit card. For instance, if your bank has given you a credit card with a limit of ₹50,000, you are not allowed to exceed this spending cap.
Variability in Credit Limits
This limit can vary based on the type of card—whether it’s a fuel credit card or a luxury card—and the user’s eligibility criteria, which the bank evaluates carefully.
How Do Banks Determine Your Credit Card Limit?
When you apply for a credit card, especially via a credit card app, the bank decides the limit by considering multiple elements.
These include:
- Your annual salary
- Age
- Existing financial obligations
- Total credit facilities in your name
- Employment status
- Credit history
- Credit score
Special Cases: First-Time Applicants
If you are a first-time credit card applicant with no credit history, you will likely receive a card with a lower limit. This cautious approach is adopted by banks to minimise risk.
How to Amplify Your Credit Card Limit?
One of the most straightforward ways to amplify your credit card limit is to use your card consistently and clear all your dues on time. Banks appreciate a history of financial responsibility and are more likely to reward you for it.
How It Works
You present yourself as a reliable customer when you use your credit card for routine expenses and clear the bills before the due date. Over time, this consistent behaviour can lead the bank to review your account and offer an automatic credit limit increase. This is often done without requiring you to make a formal request.
Income Statement as Proof: Showcase Your Financial Upswing
As your income increases, your spending power naturally goes up. Banks aim to cater to this enhanced capacity by increasing your credit limit.
How It Works
Don’t hesitate to inform your bank if you’ve received a raise at work or have additional income sources. Submit your latest payslips or income tax returns as evidence of your improved financial standing. Banks will likely view this favourably and may increase your credit limit accordingly.
Formal Requests via Credit Card App or Branch Visits: Take the Initiative
Sometimes, waiting for the bank to notice your financial discipline can be lengthy. In such cases, taking the initiative to formally request a limit increase can expedite the process.
How It Works
You can use the bank’s credit card app to quickly submit a request for a limit increase. Alternatively, you can visit the nearest bank branch and speak directly to a representative. Make sure to have a valid reason for the increase, such as a higher income or better credit score, as this will aid your case.
Advantages of Elevating Your Credit Card Limit
- Reduced Credit Utilisation Ratio: A higher limit can improve your CIBIL score by reducing your credit utilisation ratio.
- Ease in Loan Approval: A high, unused credit limit can make securing loans easier.
- Emergency Preparedness: A higher limit can be beneficial during financial or health crises.
- Access to Perks: Cards with higher limits often have added benefits like airport lounge access.
Why Does Your Credit Card Limit Matter?
Your credit card limit plays a vital role in determining your credit score. The credit utilisation ratio—the percentage of your current card balance against your credit limit—is a key factor here. Keeping this ratio below 30% is advisable to maintain a healthy credit score.
Conclusion
Understanding your credit card limit isn’t just about knowing how much you can spend; it’s about financial discipline and smart money management. Whether you own a fuel credit card or any other type, staying within your credit limit and using it wisely will improve your CIBIL score and open doors to better financial opportunities.
Frequently Asked Questions (FAQs)
Ques:- What is the average credit card limit?
Ans:- Ans:The average credit card limit can differ significantly based on your personal financial health and the type of card you possess, such as a fuel credit card or a premium card.
Ques:- Can the total credit limit be increased?
Ans:- Yes, you can request your bank to increase your credit card limit. The bank will evaluate your request based on your financial standing and payment history.
Ques:- What happens if the limit is exceeded?
Ans:- If you exceed your allocated credit card limit, the bank will impose an over-limit fee, which will be added to your next billing statement.
Ques:- What is the time frame for limit increase?
Ans:- The time it takes to increase your credit card limit can vary between banks. However, it generally takes only a few days if all required documentation is promptly submitted.
Ques:- Impact on CIBIL score?
Ans:- Managing a higher credit card limit responsibly can positively influence your CIBIL score, making you a more attractive borrower in the eyes of financial institutions.