If you are a credit card user, then you must know about credit limits, but if you don’t or if you want to know more about the credit limits, then this article can help you. go through this article to know more about credit limits.
What is a Credit 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 month. For instance, if your credit limit is ₹1 lakh, you can spend a maximum of ₹1 lakh with your card in a month. The credit limit depends on a number of things including your credit score, your income, card type, etc.
How credit limits are set?
The credit limit depends on a number of parameters card provider sets your credit limit with the issuance of your card depending on a number of things including your credit history, credit score, employment status, age, annual income, and the total amount of credit that you have already taken, etc.
And if you are applying for a credit card for the first time, chances 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 it can make your financial life much smoother.
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 that you have used.
A higher credit utilization ratio can mark you as a credit-hungry customer and that is not very good for your credit score. A higher credit score can help you to keep your utilization ratio low. It is advised to keep your utilization ratio under 30%, and if there is some emergency you should at least try to keep it under 50%.
How to increase your credit 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 improve your credit limit –
- Responsible use of credit card:
Every cardholder should use their card responsibly, which means 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 cardholder should pay their bills on time, regular bill payment marks the cardholder as a responsible customer to the card provider 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 due amount 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 to increase your credit limit. 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.
- Credit age:
If you continue using a credit card for a very long period of time, your credit limit will increase automatically although, it is a very time-consuming process.
- Benefits of having a 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.
- Help during an emergency:
A higher credit limit is always helpful during emergencies you can also get an instant loan against your credit limit to deal with the situation.
- Additional benefits:
With a higher credit limit credit card, you will get some additional benefits 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 limit as well as the credit limit.