Credit Card Limit – How Issuing Companies Determine Your Credit Card Limit

Ever wondered why the credit card limit of your colleagues or friends is higher than yours? Well, there is a reason behind this. In this blog, we are going to discuss some factors that decide your credit card limit.

Credit limit is the maximum amount or balance available with the credit holder for use without bearing any penalty.

Those who are not aware of their credit card’s credit limit available to them can check it in their billing statement, or by calling customer service or by logging into your online account.

Further Reading: Mutual Funds Sahi Hai

Deciding one’s credit limit is completely in the hands of credit card issuing bank or company. But how these companies or banks decide your credit limit is a question to be answered. We are taking two scenarios here. In one, the individual is applying for a credit card for the first time and in the second scenario, the individual is applying for another credit card with the same or different issuer.                                

Applying for credit card for the first time

Getting the first credit card can be really very exciting as well as painful for some people. Credit card companies usually do not hesitate to offer credit cards with higher credit limit to individuals with high income, low debt, and existing good credit history (built due to other loans taken by an individual). Even if you don’t have any credit history but have a higher income then it is more likely that you might get a credit card with a good credit limit.

But what about those who neither have any credit history nor higher income and inversely have higher debt levels. In such a case, credit card companies may provide you a credit card with low credit limit and even they might deny offering you a credit card altogether.

Individuals who struggle to get their first credit card may go for secured cards which are offered against fixed deposits for example you may apply for ICICI Bank Instant Platinum Credit Card against a minimum fixed deposit of Rs. 20,000 with ICICI Bank.

Applying for another credit card

When you are applying for another credit card then the issuing company will also look for the same above mentioned parameters along with a few other criteria like past payment history/records. If your past track record is smooth i.e. with no defaults or late payments then it is more likely that you will be approved of a higher credit limit.

Usually, credit card companies report your credit card activity to the credit bureaus at the end of the billing cycle or at the time of default. Your credit score (commonly known as CIBIL score) reflects everything which provides sufficient evidence to the credit card issuing company to decide your credit limit.

Important thing to note – Though you can use your credit card all the way up to the credit limit available to you, but it is in the best interest of the credit card holder to keep the credit utilization of their credit cards low i.e. up to 30% of the total credit limit available. If you exhaust the entire credit limit available to you then it shows that you are credit hungry, even if you pay all your dues timely. This problem can be tackled by holding multiple credit cards of different banks or companies.

Also Read: What is DICGC? How can it help the fd holder in case of bank default?

Does Credit Card’s Credit limit remain the same?

The credit limit may not stay the same as it is usually bound to change both on the upward as well as downward side depending on the cardholder’s payment habits. For instance, if you make use of your credit card cautiously and wisely and make timely payments of your dues then the chances of your credit limit getting increased increases. Whereas on the other hand, your credit limit may be lowered if you use your credit card recklessly and make delayed payments.

Should you opt for cards with no preset spending limit?

Some credit card companies offer credit cards without any credit limit. These cards are usually known as charge cards. And issued with no-preset spending limits and the cardholder has to repay the outstanding balance in full before the due date to avoid any charges. These cards are approved on the basis of your spending habits, debt levels, number of credit cards, credit history, etc.

But there is a catch. Even though these cards come with no-preset spending limit it doesn’t mean that your spending limit is unlimited.

To know more about credit cards you may refer our other blogs posted on our website.

Further Reading: HDFC Bank

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