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Factors That Determine Your Credit Card Limit

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Credit cards have often been the talk of the town, and many people get to use them. When it comes to leveraging such financial assets, it is crucial to be aware of all the nuances like credit card limit,, financial status and your credit score. Every credit card offers a different credit limit. Usually, it depends on your financial status and transaction capabilities.

When calculating your card’s limit, the credit card providers take a number of things into account. It is essential to comprehend the process and these impacting components. We will examine the elements that are crucial in calculating your credit card limit in this post. 

Credit Card Limit— An Overview

A credit card’s limit is the predefined amount that the card’s issuer is permitted to borrow against the card. This limit is often set by the credit card provider based on your financial positioning. However, this particular limit is decided after considering a variety of factors. 

The total limit of your card also impacts the number of purchases you can make using your card. While the limit can slightly vary depending on your credit card provider, your income and credit rating also influence it. 

For example, if your credit card limit is between Rs. 50,000 and 80,000, you can use or borrow money in between this credit limit range. You can’t cross the credit limit. The card and the bank that issued it decide what the credit card limit will be. By making on-time pay credit card bill online and using it responsibly, you may raise the credit limit. 

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Failing to make timely bill payments can result in changes to the interest rate or outstanding balance on your card. To avoid this, always aim to pay on or before the due date. Timely payments are crucial to maintaining a healthy credit score and preserving favourable card terms and offers.

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Factors to Determine Your Credit Card Limit

  • Credit History and CIBIL Score

When assessing your credit card limit, your card issuer places significant emphasis on your CIBIL score and credit history. It calculates the credit score based on your CIBIL score and uses it as a key factor in determining your credit card limit. 

Banks assign limits to individual credit cards based on the applicant’s credit history and score. This approach is designed to curb excessive spending and encourage responsible use.

  • Income and Credit Usage

The applicant’s income has a significant role in deciding the credit limit for the credit card. Your income should be reliable since only then will you be able to make your debt payments on time. Interestingly, Your credit limit tends to go up as and when your income increases. It ensures that you have the financial capability to make the credit card payment on time. 

  • Other Credit Card Limits

In addition to your CIBIL score and credit history, your credit card issuer may also evaluate your existing credit card limits, debt repayment history, and transaction records to establish your credit card limit. If you already hold a credit card with the same bank, they might extend a more favourable credit limit based on your financial profile.

Why You Should Use Money Under Your Credit Limit?

Below are some of the reasons why you must always use money under your credit limit:

  • Your may be charged an over limit fee if you exceed your credit limit.
  • It might become difficult to repay the amount.

Also Read: Difference Between Credit Card and Debit Card

Wrapping Up

A credit limit serves as a financial boundary that helps manage your expenditures. While some may view it as restrictive, understanding the significance of credit card limits can reveal their true importance and the numerous benefits they offer.

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