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.
FAQs
Quick Answer
What is a credit card limit? ›
A credit limit is the maximum amount of money you can charge on a revolving credit account, such as a credit card or line of credit. As you use your card, the amount of each purchase is subtracted from your credit limit and added to your balance. The amount you're left with is known as your available credit.
What does the credit limit on a credit card tell you? ›
A credit limit is the maximum amount of money a lender will allow you to spend on a credit card or a line of credit. Knowing your maximum, however, does not mean it's a good idea to reach it.
What is a credit limit Quizlet? ›
Credit Limit. the maximum amount of money that a credit card issuer will allow you to borrow or charge.
Is $4000 a good credit limit? ›
No, $4,000 is not an especially high credit card limit. Generally, a high credit card limit is considered to be $5,000 or more, and you will likely need at least good credit and a solid income to get a limit that high. A credit limit of $4,000 is also lower than the average credit card limit.
How much credit limit can I use? ›
A good rule of thumb is to keep your credit utilization under 30 percent. This means that if you have $10,000 in available credit, you don't ever want your balances to go over $3,000. If your balance exceeds the 30 percent ratio, try to pay it off as soon as possible; otherwise, your credit score may suffer.
Is a credit card limit a monthly limit? ›
Is a credit limit set monthly or yearly? A credit card issuer determines your initial credit limit at the time you open a new account. But that credit limit isn't set for a predetermined length of time, and the card issuer is free to increase or decrease your borrowing capacity at any time.
Should I use my entire credit card limit? ›
Most experts recommend using no more than 30% of available credit on any card. Our calculator shows you where you stand. Don't know your limit? Check your statement or online account.
What are the two types of credit limit? ›
Secured credit limit: This type of credit limit is backed by collateral, such as a car or a house. This means that if the borrower defaults on the loan, the lender can seize the collateral to repay the debt. Unsecured credit limit: This type of credit limit is not backed by collateral.
What kinds of information are creditors looking for? ›
Your income and employment history are good indicators of your ability to repay outstanding debt. Income amount, stability, and type of income may all be considered. The ratio of your current and any new debt as compared to your before-tax income, known as debt-to-income ratio (DTI), may be evaluated.
A good credit limit is above $30,000, as that is the average credit card limit, according to Experian. To get a credit limit this high, you typically need an excellent credit score, a high income and little to no existing debt. What qualifies as a good credit limit differs from person to person, though.
Does Capital One automatically increase credit limit? ›
Yes, credit limit increases can happen automatically if your information is kept up to date, like employment status and total annual income. Cardholders in good standing (e.g. good credit score, consistent on-time payments) may also receive an automatic credit limit increase once or twice a year.
What does a $5000 credit limit mean? ›
If your credit card has a limit of $5,000, for example, it means you can carry a balance of up to $5,000 on your credit card. Your credit card limit includes both new purchases and balance transfers — as well as any other transactions that draw against your line of credit, such as cash advances.
Is $20000 a good credit card limit? ›
Yes, $20,000 is a high credit card limit. Generally, a high credit card limit is considered to be $5,000 or more, and you will likely need good or excellent credit, along with a solid income, to get a limit of $20,000 or higher.
How much should I spend if my credit limit is $1000? ›
How much should I spend if my credit limit is $1,000? The Consumer Financial Protection Bureau recommends keeping your credit utilization under 30%. If you have a card with a credit limit of $1,000, try to keep your balance below $300.
What is a $1000 credit limit? ›
For example, if you have a credit card with a credit limit of $1,000, that means you can spend up to $1,000 on your card. But once you reach that limit, you'll need to start paying off what you owe before you can borrow more money with your card. Remember, it's a good idea to not use all your available credit.
