02 SEPTEMBER, 2022

With the world going digital, people are using credit cards for the smallest purchases, including groceries. For this, customers prefer the best credit card in terms of usability. 

If you are thinking to applying for your first credit card, one of the things that you will want to consider is the credit limit.

The credit card limit restricts users from going above a certain amount in a billing month.

The credit card issuer sets the credit limit depending on various criteria, including your credit history.

If you have a good credit history, you will likely have a higher credit limit than someone with a bad credit history.

Since you first receive a very modest credit limit based on your pay structure, increasing the limit of your credit card is recommended as your income rises.

What is a credit limit, and how is it determined?

A credit limit is a maximum amount a bank or lender will let you use on a credit card.

A percentage of a person’s credit limit gets reduced each time they purchase using their credit card. Available credit refers to the remaining balance.

The issuer decides the credit limit, which is dependent on various variables, including:

1. Credit history

Your credit history is the first consideration a lender will make when deciding your credit limit.

It gives lenders an idea of your financial stability and the likelihood of default.

They measure your payment history, debts, time since those debts have been paid off (which indicates stability), and recent payments.

If your credit score is not high enough, you might not receive a higher credit limit.

2. Income and employment

Lenders do not just want to know about your past debts; they also want to see if you can pay them off in the future.

So, if you are applying for the first credit card, lenders want proof that you make enough money to cover both costs (the principal payment) and any interest that accumulates over time (the interest payment).

3. Age

Another factor lenders consider when deciding your credit limit is age. If a person is younger, the credit limit will not be high. In contrast, if you gain expertise and have used numerous other credit cards, the bank will raise your credit limit and grant you a higher limit.

4. Total loans attached to the applicant

The total amount of loans attached to the applicant is the sum of all outstanding loans in their name.

The bank may lower your limit if you have unpaid credit card and loan bills.

Conversely, a high credit limit on your credit cards is possible if you are debt-free.

5. Type of credit card

In addition, a bank or financial institution may set a credit limit based on the type of account you hold with them. If you already are an account holder with your credit card issuer, the financial institution may offer a considerable credit limit on your credit card.

What average credit limit can you get?

For new applicants, credit card providers offer lower credit limits. Once these customers establish consistent spending and payback history, they are offered a higher credit limit.

The credit limit for first time credit card users varies with different lenders, depending on their credit score, age, income, and other factors.

A higher limit offers more spending power. One can have greater flexibility while making larger purchases and have enough cash on hand for any unexpected expenses.

An increase in credit limit gives credit cardholders peace of mind because it means their financial status is good.

You can request a higher credit limit from the issuer after using your credit card responsibly for a considerable time.

What are the ways to raise your credit limit?

Here are some ways to increase the limit of credit cards:

1. Pay the dues on time

The most important thing you can do is pay your bills in full and on time.

If you are late with your payments, the credit agencies may report that you have a bad payment history which will affect your credit score and limit negatively.

In contrast, by paying off all your dues on time, you will be able to get the credit limit raised.

2. Do not max out on the limit

If you constantly max out your credit card limits, this can cause problems with your credit score as the lenders realise your over-dependence on the credit cards, which may affect your credit score.

Therefore, it is important not to go over your limit, even if you are paying off a large amount every month.

3. Pay off your existing loans

If you have multiple loans, it is best to repay them before taking another loan from another lender.

If you have an existing loan with a high-interest rate, this is another way to improve your credit score by paying off the outstanding balance in full. This will help you raise your credit limit.

4. Furnish the latest income proof

The primary determinant of your credit card limit is your income. By providing updated income documentation, you can obtain the credit limit you want from banks.

Your chances of receiving larger limits will increase if you submit your pay slip and keep the bank informed.

Conclusion

Credit card providers offer customers various services, such as cashback or reward programs, low-interest rates, and flexible payment terms. However, credit cards need to be used responsibly to avoid any hassle later.

Credit cards provide customers convenience, benefits, and rewards when used wisely.

Those who opt to sign up for a credit card must never forget to follow the rules and pay off the total amount due every month.

In addition, they need to select the card that best suits them and read the fine print carefully before signing anything.

Kotak Mahindra Bank’s credit cards are available with a variety of perks. Their credit cards offer exceptional deals and discounts, the best rewards programme, and an EMI option. What’s more, users can ensure secured transactions in India using Kotak credit cards without worrying about cyber security risks.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.