In very simple terms, the Credit Limit or the Credit Card Limit is the maximum amount that a person can spend on his or her Credit Card. This limit is something that the issuing company fixes. Here are a few important aspects about the Credit Card Limit that you should know.
How is a credit limit determined on a Credit Card?
There are many factors that determine the Credit limit on a card.
- The applicant’s income.
- Age of the person.
- Any loans or liabilities attached to the applicant.
- The repayment capacity of the applicant.
- The Credit History of the person.
- The Credit Score or Credit Rating of the applicant.
- The type of credit card that is issued.
First-time Credit Card users are normally given a low credit to start with. This is because the Bank does not have any prior record of how you manage your credit. Then, over time, based on how you manage this limit, can be increased by the bank. At the end of the day, the Bank decides the limits on Credit Cards– both the credit limit and the cash limit.
What is the difference between Total Credit Limit and the available credit limit?
As the names suggest, the Total Credit Limit is the maximum limit on a card. This has been set by the Bank and means that you can spend up to that amount on your card. If you cross this limit, the card will not allow any more spending on it and the Bank will levy an over the limit fee.
The available credit limit is the available credit on your card for spending, after all your earlier spending at that particular time. So on a card that has a total credit limit of Rs 50,000, if you have spent Rs. 15,000 already, then your available credit limit is Rs. 35,000.
Credit limit increase on Credit Cards
The Bank can decide to increase the credit limit on your card, after reviewing the way you manage the credit limit that you already have and will inform you about the increase. They send you an intimation, where post your consent, the limit is increased. If you have a sudden large expense to deal with, you can request the Bank for an increase on your credit limit. If you have switched jobs and now draw a higher salary, or if you have been given a raise at work, you can show the Bank your income documents and request an increase in your Credit Limit. Please remember to transact within the credit limit of your card. If you exceed the limit, a fee will be levied and you might not be able to make further transactions.
Converting large purchases into easy smaller payments
When you make a large purchase – maybe a refrigerator, a smart TV or the latest smart phone on your credit card and do not wish to make a full payment right then, you can request the bank to convert this large billing into smaller Equated Monthly Instalments or EMIs. You will be required to pay processing fees and interest on converting your purchase to EMI and need to remember that converting your purchase into smaller payments will not free up your credit limit for the entire primary amount. The credit limit starts being available only when the payments are made.
At the end of the day, it is important to use your Credit Card prudently. Stick to your credit limit and always pay your bills on time. Never withdraw the cash on your Credit Card, if you can avoid it. If possible, it is a good thing to pay your bills in full every time, without carrying anything forward to the next month. This will prevent you from paying interest and will have a positive impact on your credit score.
