You can have as much as you want in your credit line on your credit card, however, you can’t exceed the credit limit. This guide can help you set a limit based on your earlier research and previous expenses.
The credit limit on your credit card is the maximum outstanding balance that you are allowed to hold on your card at any given point of time. The size of your limit for credit affects the purchasing power you hold with your card. So, the higher is your credit limit, the more you can spend on your credit card. Once you have reached this predefined limit, your card provider will not allow you to make any extra expenditures until you have paid off some portion of these outstanding dues.
Another reason that makes your assigned credit limit so important is – your credit score. The amount of credit used by you impacts this three-digit score. Your credit score consists of 30% of a factor that is commonly known as credit utilization. This is the ratio of the balance on your credit card to the limit on your credit card. The higher the ratio, the worse the impact on your credit score. This is because this indicates that you are using a large portion of your credit limit. Therefore, if you are holding a lower limit, you will not have much room left to make any expenditures on your card without it hampering your limit.
Credit Limit
If you are planning ahead to make a big expenditure or make use of the balance transfer facility on your credit card, being aware of the limit on your card beforehand will help you come to a decision whether your card will be useful or not. You could also skip over the cards in the market with limits not fitting your needs, such as a low limit card that does not provide you the capacity for a balance transfer, or maybe a high limit card that you know you mostly are not going to qualify for.
Unfortunately, it is next to impossible to put a prediction on the credit limit you will be assigned until after you have been approved for the card. The issuers of credit cards in the market use a wide range of factors that help them in setting the limit for the cards, and until they have taken these features into consideration, they are unable to offer you a firm limit of credit.
Factors Affecting Your Credit Limit
The following are the factors that have an impact on the limit of credit on your card:
1. Type of Credit Card
One should think of credit cards to one of those products that have predefined features. Such as the rate of interest, the fee & charges, the credit limit. How the limit for credit is decided depends on the card. Some cards come with a specific limit, that is received by every approved cardmember, regardless of the other factors. Whereas, other cards have a specific range for the limit and the approved cardholders are assigned a limit that lies within that range. The most qualified applicants will usually be given the higher end of the range.
However nice it would be for the providers to publish the credit limit of the card, they do not do so. If you dig deep around the popular website for credit card reviews, you might find some information that is submitted by the users about the limits for the various cards in the market.
2. Income
The basic logic comes into play here – the amount of money you earn, generally has an effect on the money that you can manage to pay. While there are higher probabilities of you getting approved for a limit on the higher end if you have a higher income, there is no guarantee that your income will certainly get you a high limit for credit. There are various other factors that still play an essential role in this decision.
3. Debt to Income Ratio
Using the information available on your credit report and your credit card application, the issuer will be able to get an estimate of your debt to income ratio. This ratio might affect the limit you receive on your card. This implies that a high income that is offset by a high debt could end up resulting in a lower credit limit as compared to what the limit would be if you would be spending less on your debt payments.
4. Credit History
The way that you have handled the limit for credit on your other cards will not only have an impact on whether or not you are approved for a card but also on the limit that you receive on that card. High balances, late payments, and other negative factors reduce your chances of being approved for a high credit limit on the card.
5. Other Cards’ Limits
The issuer of the credit card that you have applied for might like to take cues from the other cards you might be holding. If your credit report shows that the credit limits assigned to you on your other cards are high, you have good chances of being approved for a higher limit on a new card. Whereas, if you have been holding cards with limits slightly on the lower end, it is quite unlikely for you to be approved for a higher credit limit on a new card.
6. Credit Information and Income of Co-Applicant
If you are applying with another individual jointly, the issuer of the credit card will consider the income and the credit qualifications for both of you in order to set a credit limit.
Generally, the bank balance and other assets you might be holding do not impact your credit limit, unless you are offering money saving in order to secure a credit line, in case of a secured credit card.
Being aware of the various factors that the card providers consider while setting credit limits, you are more likely to receive a lower limit for credit if you are holding a lower income, or you have a high debt to income ratio, or you are new to the path of credit cards or you are someone who is rebuilding the credit history, or the limits for credit on your other cards are on the lower end.
When Do You Get To Know Your Credit Limit?
Even the time when you get to know your credit limit is completely dependent on your credit card provider. It is possible that you may be aware of the limit on your card at the same time as you are approved, or you may not be aware of it until you have received your card in hand.
This means that you will not be able to make any solid plans for how to use your credit card until you know for sure what the limit of credit will be on your new card.
Getting a Higher Amount For Spending
You are not always stuck with the credit limit that you start off with. After numerous months of using your credit card in a responsible manner, your issuer might automatically raise the limit on your card. For increasing your probability of getting an automatic limit increase, use your card, do not max out the limit for credit provided to you, and aim at paying at least most of your outstanding bill every month.
However, not all card providers automatically increase the limit for the cardholder. You may have to put in a request to increase the limit on your card. It is very simple to do so and can be done easily by logging into your account or contacting the customer service helpline of your issuer. You may be required to update your income or provide a number for the limit amount that you would like. The card provider will then process your request and will get back to you regarding whether or not your request for an increase in the limit has been approved.
Conclusion
If your request for an increase in the credit limit is not approved, your card provider is likely to send out an email or letter to you stating the reasons why your request status is denied. If your credit score was one of the factors that came into play for this decision, you may want to put in a request to obtain a copy of the score that was used in assessing your request along with any other factors that played a role.
If your credit report was the major player, then you should obtain a copy of the same and study the reason behind the denial of your request. Once you are aware of the reasons, you might want to improve them before putting in another increase request.
Dan Kihato
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- All You Need to Know About Credit Limit on Credit Card - May 8, 2020
