Why Credit Card Limit Matters & Tips to Increase the Limit

calculating credit limit with the help of pen and calculator

When it comes to money management, credit cards are a useful tool. They come with a credit limit that controls spending. While using a credit card, it is important to understand how this credit limit is set, ways to increase it, and the variance between the total and available credit limit.

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What is a Credit Card Limit?

A credit card limit is the maximum amount that a cardholder can borrow or charge on a credit card. It serves as a financial cap, dictating the extent to which one can utilise the credit card for purchases, cash advances, or balance transfers.

Understanding this limit is fundamental to managing one's financial responsibilities and avoiding potential pitfalls associated with excessive borrowing.

How is Credit Card Limit Determined?

business man holidng credit card for checking credit limit

The factors that influence the determination of a credit limit on a credit card are as follows:

Creditworthiness: One of the primary factors in determining a credit limit is the applicant's creditworthiness. This involves the examination of the individual's credit history. A higher credit score is associated with a higher likelihood of receiving a higher credit limit.
Income Level: The applicant's income plays a significant role in determining the credit limit. Financial institutions assess the income-to-debt ratio, ensuring that the individual has the means to manage the credit they are seeking.
Existing Debt Obligations: Financial institutions assess the applicant's existing debt obligations, including outstanding loans and credit card balances. This helps in evaluating the individual's capacity to handle additional credit responsibly.
Credit Card Type: The specific type of credit card applied for can also influence the credit limit. Premium or elite credit cards may come with higher credit limits, catering to individuals with higher income levels and more extensive credit histories.
Requested Credit Limit: In some cases, applicants may have the option to specify the credit limit they are seeking. While this doesn't guarantee approval for the requested amount, it can influence the final determination.
Age and Credit History Length: The length of an individual's credit history is considered, and longer credit histories may be viewed more positively. Younger individuals or those with a limited credit history may start with lower credit limits.
Utilisation Rate: The utilisation rate, which is the percentage of available credit currently being used, is a critical factor. Those with a lower utilisation rate may be more likely to receive a higher credit limit.

What is the Difference Between the Total Credit Limit and the Available Credit Limit?

Understanding the difference between the total credit limit and the available credit limit is essential for responsible credit card management, the differences are as follows:

Criteria	Total Credit Limit	Available Credit Limit
Definition	The highest possible borrowing or spending limit is accessible to a credit card holder.	The remaining amount can be utilised after deducting the current outstanding balance.
Calculation	Credit limits on cards are determined by the issuer based on credit, income, and financial history.	Total credit limit minus the current outstanding balance and any pending transactions gives the available credit limit.
Significance	Represents the maximum allowed spending or borrowing on a credit card.	Indicates the actual amount available for new purchases, cash advances, or balance transfers.
Implications for Debt	Does not consider the current balance or how much of the credit limit has already been utilised.	Reflects the remaining credit after accounting for current spending and outstanding balances.
Monitoring Usage	Useful for understanding the maximum borrowing and spending capacity.	Crucial for preventing over-limit fees and managing spending within a budget.
Overspending Risk	Does not provide real-time information on available funds, and a higher total limit might increase the risk of overspending.	Helps in avoiding exceeding the credit limit and potential fees associated with over-limit transactions.
Credit Utilisation	Total Credit limit is not directly linked to credit utilisation ratios but can influence the ratios.	Directly impacts utilisation ratios, as it considers the relationship between outstanding balances and credit limit.

How to Increase Credit Card Limit?

a young business woman holding credit card to check the credit limit

The following are the steps to increase your credit limit, get enhanced financial flexibility, and improve your credit utilisation ratio:

Step 1: Monitor Your Credit Score: Regularly check your credit score to assess creditworthiness and increase the chance of a successful credit limit raise.
Step 2: Review Your Credit Card Account: Assess payment history, credit utilisation, and financial stability to enhance approval odds of your credit card.
Step 3: Request an Increase Online: Use online platforms provided by card issuers for limit increase requests. Log in, follow instructions, and submit your request.
Step 4: Contact Customer Service: If no online option is available or for personalisation, contact customer service to express interest in a credit limit increase.
Step 5: Provide Updated Income Information: Some issuers consider income for limit increase requests. Be ready to strengthen your case with current income details.
Step 6: Showcase Responsible Usage: Demonstrate responsible credit card use with on-time payments and avoid late fees to position favourably for a limit increase.
Step 7: Utilise Automatic Reviews: Some issuers conduct periodic automatic reviews, potentially increasing your limit based on positive usage and stability.
Step 8: Gradually Increase Your Request: If initial requests are denied, consider asking for a modest increase, making adjustments more acceptable and increasing approval chances.
Step 9: Consider a New Card: If efforts to increase the credit limit are unsuccessful, explore new options for different limits and increased flexibility.
Step 10: Be Patient: Credit limit decisions take time; be patient and continue responsible management. Avoid frequent requests, as these may be perceived negatively.

In essence, your credit limit is a crucial financial boundary. This article has delved into its determination, the distinction between total and available limits, and its overall importance. Navigating this financial parameter wisely is key, impacting your purchasing ability, credit utilisation, and overall financial health.

FAQs on Credit Card Limit

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Is having more credit limit good or bad?

Yes, having a higher credit limit can be advantageous if used responsibly. However, it can be detrimental if it leads to excessive spending and debt accumulation. It is crucial to manage a higher credit limit wisely to reap its benefits without falling into financial pitfalls.

What is the credit card limit for a 50000 salary?

Generally, the credit limit is twice or thrice your current salary. So, if your salary is ₹ 50,000, you can expect a credit limit of ₹1 lakh to ₹1.5 lakh.

Is it bad if I overpay my credit card?

No, overpaying your credit card is generally not considered bad; however, it may result in a credit balance on your account. Some credit card issuers automatically issue a refund, while others allow the credit to offset future purchases.

Can I add money to my credit card to increase the limit?

No, you cannot directly add money to your credit card to increase the limit. The issuing bank determines the credit limit and if you want a higher limit, you may need to request a credit limit increase from your card issuer.