A Credit Card enables you to instantly borrow money up to a pre-approved limit to pay for the goods and services you avail. The card can come in handy for making larger purchases and covering financial emergencies. If you are new to Credit Cards, one aspect that deserves your utmost attention is the credit limit. Here is a look at what a credit limit is on a Credit Card.
The limit on Credit Cards is the maximum amount cardholders can spend using them. If it is Rs. 50,000, you are not allowed to pay more than that amount on your card. The credit limit varies for different users. To better understand how it works, you should be aware of the factors banks consider while fixing an applicant’s credit limit. These include:
- Income: The higher the monthly or annual income, the higher the credit limit.
- Age: It is a vital criterion for fixing Credit Card limits.
- Loans or liabilities: Since existing Loans and EMIs can increase the risk of defaulting, applicants with one or more existing Loans may have a lower credit limit.
- Repayment capacity: Factors such as monthly expenses affect the repayment capacity of applicants that banks analyse to determine the credit limit.
- Credit history: The credit score and credit history help banks determine an applicant’s creditworthiness.
How to check the limit on your Credit Card?
To check your Credit Card limit, please refer to the welcome kit, monthly Credit Card bill payment statements, or contact your bank’s customer care team. The total credit limit is the maximum usage limit set by the bank. The available limit is the deduction of your spending from the total credit limit.
For example, if the total credit limit on your card is Rs. 50,000 and you purchase goods worth Rs. 10,000 with your Credit Card, the available limit will be Rs. 40,000.
Understanding Credit Card limit and score
The credit score is a three-digit figure, ranging between 300 and 900, that describes the creditworthiness of an individual. In India, credit bureaus like CIBIL TransUnion, Equifax, Experian, and CRIF High Mark compute individuals’ credit scores. When you apply for a new Credit Card, the bank checks your credit score before approving the request. If you believe your Credit Card limit is low, you can increase it by:
- Clearing Credit Card bills in full and on time
- Keeping the credit utilisation ratio low
- Repaying existing Loans
- Providing evidence of an increase in income to the bank
- Improving your credit score
Remember, spending above the Credit Card limit can result in a penalty, which is payable to the issuer or bank.
Conclusion
Understanding how the Credit Card limit is determined is essential, as the limit defines the maximum amount you are allowed to use with the card. Spending above the limit can have severe consequences. When you clear the total outstanding balance of your Credit Card, the credit limit goes back to the original amount. It is adjusted accordingly if you only make the minimum payment.
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