Credit card limits say the maximum amount of money you can spend using your credit card. Credit card providers determine your credit card limit by examining a number of factors like your credit score, monthly income, your past repayment behavior, etc.
Both secured and unsecured credit cards have credit limits, if your credit card is secured, the card provider sets your credit limit depending on the collateral amount against which the card is issued.
If you are applying for a credit card for the first time, there is a good chance that you will get a very low credit limit, this is because your credit card provider doesn’t have sufficient data to guess how you are going to maintain your card. But don’t worry; you can easily improve your credit score very easily. We will talk about how to increase credit card limit but there are some facts you need to know about credit limits.
What is credit card limit?
A credit limit is a limit set by a card provider for a particular cardholder, this limit says how much you can spend with your credit card within a credit card billing cycle. For instance, if your credit limit is Rs. 1 lakh, you can spend a maximum of Rs. 1 lakh with your card in a month. The credit limit depends on several things including your credit score, your income, card type, etc.
How are credit limits set?
Every credit card provider has its approach to determine credit limits. But some common elements play the most important role in determining a credit card limit. Let’s talk about them in detail.
- The applicant’s credit history:
Your credit history says your repayment behavior. For the card provider, you are a total stranger who is asking for credit. So they decide your worthiness based on your credit history.
If you have a good credit history then you are most likely to get a credit card with a higher credit limit like the hdfc bank regalia credit card or icici bank sapphiro credit card. On the other hand, a bad credit history will make it harder to get a good amount of credit. It is equally bad to have no credit history since there will be no data on which the card provider can rely.
- Debt-to-income ratio or DTI:
The next important element in determining a credit limit is the applicant’s monthly income. But it is not necessary that a higher monthly income will bring you a higher credit limit, the card provider also looks into your DTI or debt-to-income ratio. It is the fraction between your monthly debits and your average monthly income. Therefore it is recommended to keep your DTI less than 43%.
- Limit on your existing credit cards:
The limits on your other existing credit card also play an important role in determining the limit of your new credit card. For instance, if you have an axis bank select credit card and the existing axis bank credit card limit is Rs. 70,000 then it will be difficult for you to get Rs. 2,00,000 limit approved on a sbi premium credit card. On the other hand, if you already have a premium credit card like the hdfc infinia credit card, it will be much easier for you to get a higher limit on a new credit card.
- Credit card type:
Different credit cards offer different benefits and also offer specific credit limits, and it does not depend on the above-mentioned factors. For instance, a premium credit card like the hdfc regalia credit card or the infinia credit card offers a much higher credit limit than a regular credit card.
So if you apply for a basic or co-branded credit card like the icici makemytrip credit card you will get a lower credit limit. This is because the limit on the card is fixed and you cannot get a higher credit limit on this card even if you have a good income and a higher credit score.
And if you are applying for a credit card for the first time, chances are that you will get a very low credit limit. But the good thing is that it won’t last long. By using your credit card regularly and paying your card bill timely, you can improve your credit limit very easily. A higher credit limit is very important and it can make your financial life much smoother.
If you have no credit score, then you can apply for a credit card on fd (credit cards that are issued against a fixed deposit account) such as, the axis bank my zone credit card or icici coral credit card against fixed deposit, both of these cards are issued against fixed deposit, and you don’t need to have a credit score or show any minimum salary for credit card application, in fact, you can get this credit card without income proof.
How to increase my credit card limit?
A higher credit limit is very helpful, if you have a lower credit limit or if you have applied for a credit card for the first time you will get a lower credit limit. But this can be fixed very easily. There are some tips given below that can help you to increase credit card limit.
- Responsible use of credit cards:
Every cardholder should know how to use credit card responsibly. They should never use their complete credit limit, should keep the credit utilization ratio under 30%, pay card bills timely, and most importantly do not keep any dues in your account. With responsible use of your credit card, you can increase your credit limit very easily.
- Pay card bills on time:
Every credit card holder should pay their bills on time, regular bill payment marks the cardholder as a responsible customer and it helps a lot in improving credit limit. In case, if you are in financial trouble then at least try to pay the minimum amount due in credit card bill, and don’t use the card until you clear the due.
- Update your card provider about your income:
If you have got a promotion and your salary has significantly increased, inform your card provider about it and ask them for a credit card limit increase. Generally, if you have a good credit history, they will approve it.
- Request your card provider about it:
If you request your card provider to increase your credit limit providing some tangible reasons, there is a good chance of getting approval, but you have to provide some solid reasons for that. If you are using an Axis Bank credit card then you can send your request from your net banking/mobile banking account, or you can call the axis bank credit card customer care no and request them to increase your axis bank credit card limit.
- Credit age:
If you continue using a credit card for a very long time, your credit limit will increase automatically, although it is a very time-consuming process.
What is the importance of a credit limit?
Credit limit plays an important role in your financial life, not only it allows you to spend more with your card but also it is connected with your credit score with the Credit Utilization Ratio. The credit utilization ratio shows the percentage of the total credit limit and the credit that you have used. A higher credit utilization ratio can mark you as a credit-hungry customer and that is not good for your credit score.
A higher credit score can help you to keep your utilization ratio lower. So, you can apply for a higher credit limit card like the regalia hdfc credit card or icici rubyx credit card. It is also advised to keep your utilization ratio under 30%, and if there is some emergency you should at least try to keep it lower than 50%.
- What are the benefits of credit card higher credit limit?
There are lots of benefits of having a good credit limit. There are some benefits of having a good credit limit given below:
- Helps you to maintain your utilization ratio:
A higher credit limit helps you to keep your credit utilization ratio lower, and the low utilization ratio will help you to improve your credit score.
- Helps you to get loans:
When you apply for a loan, the lenders will look at your credit history, and if you have a higher credit limit with a low credit utilization ratio, it will be much easier for you to get a loan. If you have a higher credit limit, you can apply for a personal loan on credit card.
- Help during an emergency:
A higher credit limit is always helpful during emergencies; you can also get a loan on credit card limit to deal with the situation.
- Additional benefits:
With a higher credit limit credit card, you will get some additional benefits of credit card like lounge access, hotel booking facility, membership benefits, and lots more. Therefore, it is evident that having a big credit limit is very important, it makes your life a lot easier and also you will get some extra benefits. So every credit card holder should try to improve his/her credit score as well as the credit limit.
- How to increase credit card limit?
Credit scores have a deep impact on your credit limit; therefore if you want to maintain your credit limit, you need to keep your credit score healthy. In such a time of uncertainty, you need to follow a well-planned strategy to protect your credit score. There are some suggestions given below that can help you to keep your credit score healthy.
- Pay your bills timely:
This is the most effective way to maintain your credit score. By making repayments timely you can improve your creditworthiness as well as your credit score. Keep track of your credit card due date and if there is an emergency try to pay the minimum amount due in credit card bill, and stop using the card until you clear off your dues. It will save you from the late payment charge and from being listed as a defaulter. You can also link your credit card to a credit card payment app it will notify you before the due date, also you will get some exclusive credit card bill payment offers too.
- Check your credit score:
You can keep track of your credit score by checking it regularly. By the law, you are entitled to one free credit report annually, and you can get another if you have taken a loan recently. You can also check your credit score anytime you want using some monitoring services. But if you perform too much credit score inquiry then it may create a bad impact on your credit score. It is safe to check your credit score once in a 5 to 6 month period. If you notice something wrong in your credit report, you should inform the credit bureau so that they can rectify it.
- Understand the risk factors:
Some risk factors are taken into count while calculating your credit score. You should focus on those factors to improve your credit score. The factors are –
- Your payment history.
- Amount of debt.
- Credit history.
- The amount of new credit.
- Type of credit you are using for instance if you are using a premium credit card like sbi premium credit card you can get approved for a higher credit limit on your new credit card.
So, keep these factors in mind and start working on improving your credit score form today. For instance, if your credit report says that you have high credit usage then try to reduce the number of loan applications you make annually.