Last Updated on January 30, 2023 by hassan abbas
Getting a credit card today is easier than ever, thanks to developments in the banking and financial sector. A credit card is among the best financial assets that one can have for meeting urgent expenses. It is like a lifeline during unexpected financial emergencies. The ability to defer an immediate payment by using a credit card is quite amazing. However, not everyone who applies for a credit card can get one. After all, it’s a credit tool and credit card companies are looking for customers who can repay the borrowed amount. Therefore, they have different eligibility criteria to choose users. Different users can be offered a varied credit limit, contingent on their profile. Read on to know more about credit card limits and factors influencing the same.
What is a Credit Card Limit?
A credit card limit can be simply explained as the maximum amount that a user can spend using their credit cards. This can vary depending on the user’s profile. The limit for a credit card is set by the issuing body, which analyzes the credit history of the user. If an individual has a good income source and repayment track record, he is naturally eligible for a higher credit card limit. If your credit card limit is INR 50,000, you can only spend up to INR 50,000 using that card. It is recommended to keep a healthy credit utilization ratio and not overspend using your cards. Here are some key factors that influence your credit card limit.
Factors Influencing Your Credit Card Limit
Various factors are considered before establishing a credit limit for any card user. Some of the most prominent factors that help to determine your credit card limit are mentioned below.
1. Income of the user
The most important factor that determines the credit card limit is the income of a user. Your total income from different legitimate income sources is considered before providing a credit limit. If you have multiple income sources, your total income will also be higher and this will help you get a better credit limit. Income influences your ability to repay a debt, therefore, it is a decisive factor in determining your limit.
2. CIBIL score of the user
Your CIBIL score or credit score plays the most important role in determining your credit limit. It gives a numeric figure for your credibility based on your credit history. This is used to evaluate your creditworthiness in the market. A credit score over 700 is good and over 750 is excellent. You must try to keep your credit score over 750 if you want a higher limit. A lower credit score not only reduces your credit limit but can also lead to a rejection of your application for a credit card.
3. Ongoing loans
If you already have taken a loan from a bank, the chances of you getting a high-limit credit card will be lower. Ongoing loans and EMIs influence your credit card limit. This happens because of an important metric evaluated by credit card issuing organizations, the debt-to-income ratio. The debt-to-income ratio measures the total percentage of your monthly income that is used to pay off different debts. A higher ratio will reduce your chances of getting a high credit card limit. A debt-to-income ratio below 30% is desirable. If you have too much debt to repay every month, the chances of default will increase.
4. Hard-line credit enquires
There are two types of inquiries done for checking the credit score of an individual; a soft inquiry and a hard-line inquiry. Whenever someone applies for a credit card, the financial institution conducts a hard-line credit inquiry to find the credit score and history of the applicant. A soft credit score inquiry doesn’t affect your credit score. However, a hard-line credit inquiry will reduce your CIBIL score by a few points. If you have applied with multiple banks, this will drastically impact your credit score. This will reduce the chances of getting a higher credit limit because of a poor credit score.
5. Relationship with the financial institution
The total credit limit is also influenced by your relationship with the card issuer. If you are already a loyal customer of the financial institution, you will probably get a higher credit limit. You should always apply for the best rewards credit card India with your existing bank.