Credit Card Limit

What is a Credit Card Limit?

It's a common myth that you can spend an unlimited amount on a credit card. The truth is that your spending is bound by a certain credit card limit. Credit card limit is the pregiven purchase limit of a credit card. In simple terms, it's the maximum amount you can spend on your credit card. This maximum limit is set by your lender and is different for different applicants. 

Credit card issuers assess several key factors like your age, income, existing debt liabilities, credit history, and CIBIL score to arrive at this limit. In fact the type of card you choose and the lender’s internal policies also impact the sanctioned credit limit. While it's set by the lender, credit limits are not static. With prudent credit card use and debt management, you can increase your credit score and enjoy a higher credit card limit. 

However, knowing your current credit limit is essential to manage your expenses and debt ratio. Regularly breaching the credit limit can result in poor credit scores making it difficult for you to secure loans in the future. 

How to Check the Maximum Limit on Your Card

Wondering how to check your credit card limit? Well, the process is pretty simple and easy. Here’s a list of ways you can review your credit card limit:

Option 1: Via Net Banking 

You can check your credit card limit via the net banking portal of your bank. You simply need to log into your account with your credentials, and go to the credit card section. Here, you can pick the card you wish to review. You will find the maximum credit limit for the card listed under the ‘Credit Card Account Summary’ option. 

Option 2: Via Customer Care

You can call the bank’s credit card customer care number to instantly retrieve your credit limit details. Once the customer care executive verifies your identity, this information will be communicated to you. 

Option 3: Via SMS and Missed Calls

Some lenders also offer instant credit limit checks via SMS and missed calls. The SMS code for lenders vary, but most have a dedicated SMS string code followed by the last digits of your card. Similarly, you can also check your credit card limit with a missed call from your registered number if your current lender offers this service. 

How to Increase Your Credit Card Limit

Credit card limits are decided by the lender after assessing several factors. Most banks and lenders periodically review your credit card usage and repayment patterns to grant higher credit limits. While lenders reserve the right to raise your credit limit, here’s how you can improve your chances of an increased credit card limit:

• Use Your Card Wisely: Your credit utilisation ratio plays a significant role in determining your credit limit. It is the ratio between your credit card limit and the amount you spend on the card monthly. In fact, you should cap monthly spends on the card to 30% of your credit limit. Maintaining this ratio indicates that you are in control of your finances and thus, a low-risk borrower.  

• Make Timely Bill Payments: Lenders base your credit card limit on your CIBIL score. And nothing affects your CIBIL score more positively than making timely payments. If you keep clearing your outstanding credit card dues in full before the due date, your CIBIL score will automatically improve. This will push the lender to increase your credit limit. 

• Contact Your Lender: You can directly contact your issuer and request for a credit limit hike. However, if you do so, be prepared to furnish valid proof to back your request. For instance, if you’ve approached the lender for a higher credit card limit on account of an annual raise, keep your new payslips handy. 

• Apply for a New Card:

  If you’ve been clearing your bills on time and maintaining your credit utilisation ratio, you might qualify for a new credit card with a higher limit. With both cards combined, you will have access to a higher aggregate credit limit. 

Total Credit Limit vs Available Credit Limit

There is a difference between the total credit card limit and the available limit on your credit card. Here is some clarity on what these two terms mean.

• Total Credit Limit

The total credit limit is the maximum amount that you can spend using your credit card. If you do spend more than the total credit card limit, you will have to pay the over-limit charges set by your card issuer. 

• Available Credit Limit

The available limit of your credit card, on the other hand, is the amount of the total credit that is unspent or unutilised at any given point in time. 

Let us look at an example to understand this better. Say you have a credit card on which you can spend up to ₹1 Lakh. This is the total credit card limit. Now, let’s assume you have spent ₹40,000 so far in this billing cycle. This means ₹60,000 of your total credit limit is still unutilised, making it the available credit limit. 

How Does the Credit Card Limit Affect Your Credit Score?

TransUnion CIBIL calculates and assigns you a three-digit number, which is your credit score. This number can range from 300 to 900. It reflects your credit worthiness, meaning that the higher the score, the more creditworthy you are. If you have a credit card, the manner in which you use the total credit card limit impacts your credit score. 

When you spend on purchases using your credit card, you use a part of the total limit available on it. This determines your credit utilisation ratio, which is effectively the percentage of the total credit card limit that you use. Your credit card issuer periodically reports information about your credit card limit and your credit utilisation to credit bureaus and credit rating agencies. These agencies then use the information to compute your credit score. 

Broadly speaking, the lower your credit utilisation ratio is, the higher your credit score will be, provided all other factors are also positive (such as prompt repayments and a healthy credit mix). So, the less of your credit you use, the better it is for your credit score.