The term credit card limit refers to the maximum amount that can be borrowed on a credit card at any point in time. This limit is decided by the credit card issuing authority and differs from person to person. It is communicated at the time of issuance and remains the same until the bank deems a change is necessary. It is important to be aware of the credit card limit to ensure that your expenses don’t overshoot it.
Once you apply for a credit card, the bank takes into account various factors to determine your credit limit. These include:
Current debt amount
Credit available currently
If there is no credit history and credit score to your name, and you have applied for your credit card, the bank might consider giving you a card with a low credit limit as it is unaware of the risk involved. Similarly, if you have a good credit score and have a stellar history, the bank will be comfortable in offering you a card with a higher credit limit.
When it comes to the credit card limit, there are two types of limits on your credit card. One is the total credit card limit, while the other is the available credit card limit. The total credit limit is the maximum amount that you can spend on the card, even if all dues are cleared. On the other hand, the available credit limit is the amount that is currently available for making transactions. To understand this, let us take an example-
If you have a credit card with a limit of INR 1,00,000, it means that you can use up to INR 1,00,000 on the card. This is the total credit limit. Now, if you’ve used INR 30,000 on the credit card, the amount of funds you can borrow on the card gets reduced to INR 70,000. This is called the available credit limit.
It is important to remember that the available credit limit changes both with credit card use and repayment. As long as you are regular with your payments and repay in full, the credit limit will improve. If we consider this in the context of the above example, and you pay back the INR 30,000 you spend on the card, the available credit limit will again be back to its former total, i.e. INR 1,00,000.
Knowing your credit card limit is important to plan your future expenses. Borrowing more on the card can have a negative impact on your finances. Your credit card limit also directly affects your credit score. A reduced credit score hampers your creditworthiness and your chances of securing a loan in the future.
The credit card score fluctuates with the use of your credit card. The higher the credit score, the better is your creditworthiness. If you spend beyond the set limit and your credit card dues grow, your score gets reduced. This change is reported to credit bureaus and becomes a part of your credit history.
The amount of money you can utilize on your credit card at any given point of time is mentioned in the form of a ratio and is called the credit utilization ratio. The formula used for calculating your credit utilization ratio is-
Credit utilisation ratio = (Outstanding balance on all credit cards/Total credit extended on all credit cards) x 100
If your spendings are close to the credit limit of the credit card, the utilisation ratio will be very high every month. This might create a negative image with the bank with regards to your capacity to manage your finances. In such a situation, the bank might also think that your chances of defaulting on your payments are very high. As a result, your credit score will get reduced, making it harder for you to secure a loan.
On the other hand, if you have a low credit utilization ratio, it implies that you are capable of managing money and can pay it back in full on time. This would increase your credit score, which will allow you to secure a loan easily.
It is advisable to have a credit utilization ratio below 30 percent.
If you make transactions that take the bill beyond the credit card maximum limit, the bank levies credit card overlimit charges against your card. This charge has a negative impact on the credit score, which again reduces your chances of loan approval.
To check the credit limit of a credit card, you can opt for any of the below-mentioned means-
If you are registered with the bank’s net banking service you can check your credit card limit by following a few easy steps-
Visit the bank’s net banking portal
Use your credentials and log in to your account
Go to the credit card section
Select the credit card for which you want to check the limit
Click on the 'View account summary' option
In the credit card account summary, your credit card limit will be mentioned.
You can also check the limit of your credit card by sending an SMS to your bank, using the keyword in the approved format, from your registered mobile number. You would get an instant reply from the bank with details regarding your credit card limit.
Credit card limit check can also be done in real-time by calling the bank’s credit card helpline and placing a request with a customer care executive. After verification, the executive will tell you your CC limit.
If you are a dependable user who spends wisely and pays the bills on time, the bank will itself reach out to you to increase your CC limit. However, if you need more funds, you too can initiate the process. If you are wondering how to increase your credit card limit, here is a list of things you can do-
You can visit the bank or raise a request through net banking to increase your credit card limit
You can apply for another credit card with a higher credit limit and use one or both the cards for transactions
In case your income has increased, you can offer your latest payslips to the bank and request to increase your CC limit
You can be regular with your payments and increase your credit score so that the bank considers you for a credit card limit increase
You can also opt to hold on to a credit card for a longer duration so that the bank reaches out to you to increase the credit limit of the credit card
Now that you know how to increase your credit limit, here is why you should consider increasing your card’s credit limit-
If you spend the same but have more credit available on your card, your credit utilization ratio will decrease which will improve your credit score.
Higher credit, low utilization ratio, and better credit score will improve your chances of getting loan approval in the future
Having more credit available on your card can be useful in case of emergencies such as financial or health emergencies.
Cards with higher credit usually come with perks such as premium memberships, rewards, lounge access, etc.
The credit card limit is decided based on the yearly income, age, the current debt amount, available credit, employment status, credit score, and credit history.
If you tend to borrow more on your credit card, it is better to increase the credit card limit. It will lower the credit utilization ratio and hence improve your credit score.
The credit card swipe limit per day or the credit card daily limit is the total amount that you can borrow on the card in a day.
Requests for credit card limit increase can be denied if you are irregular with your credit card payments, have a high credit utilization ratio, or a low credit score.