Since credit cards are an inherent part of our lives today, credit limits are the most important aspect credit cardholders should be enlightened upon. Credit limits can be confusing and People often do not take credit limit seriously and land up in trouble with their credit score. If you have a lower credit limit, then instead of spending above your credit utilization ratio, you can opt for a higher credit limit and save yourself from debt or bad credit score.
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As the name suggests, the credit limit is the limit up to which you can make purchases on your credit card. The purchase limit is set by the bank that issues the credit card by evaluating your credit score and repayment history. Therefore, the credit limit varies depending on the card type and the eligibility of the customer. Applicants who have no credit history are likely to get lower credit limit on their credit cards as the issuing bank is unsure about their repayment capacity.
When banks receive a credit card application, they determine your eligibility through multiple factors that include:
See Also: How to Apply for Credit Cards Online?
Increasing your credit card limit allows you to access some added benefits on your credit card. You will be a part of the privileges and rewards program that were previously excluded. Listed-below are some of the benefits that will help you understand the privileges you can enjoy on an upgraded credit card:
As a credit card user you must already be aware of the importance of the credit utilization ratio. A higher credit limit helps you to maintain a low credit utilization ratio and thus results in a better credit score. Suppose you have a credit utilization ratio of Rs. 1 lakh, you can conveniently be within 30% your credit limit. However, if your credit limit is lower say 50,000 then 30% of the credit limit means Rs. 15,000. Hence it is sometimes possible that you may end up spending more when you have a lower credit limit.
See Also: The Beginners Guide to Credit Cards
When you have a high credit limit and you do not spend more than 30% of the limit then financial institutions believe you are not credit hungry and know how to manage your finances well. Thus getting an approval on your loan application becomes easier.
A higher credit limit means it acts as an additional source of managing your expenditures during financial or medical emergencies. You can make some basic hospital payments in case of medical emergencies through your credit card and repay later.
Credit cards with higher credit limit come with additional benefits. It offers you benefits like access to airport lounges, free memberships at clubs or hotels, discounts on selected merchandise outlets etc.
Now that you know the benefits of higher credit limit you can decide for yourself whether to opt for an upgraded credit card or not and what are the factors that help you access an upgraded credit card.
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