You’re at the Apple store, eyeing the new iPhone 16 that costs ₹70,000. You grab your credit card, but when you check, you discover your limit is just ₹50,000. Many people find it frustrating as well as embarrassing when they want credit cards but can’t get them. This often happens because they lack a credit history or have a low credit score.
Not having a credit score can make it hard to get a credit card. Banks want to see how you borrow money before they give you credit. Without a credit history, it can be tough to improve your financial options. Even for those with some credit history but a low credit score, the situation isn’t much better. Banks usually give lower credit limits to people with poor credit scores because they see them as higher risk. This means you may have trouble making larger purchases or improving your credit further.
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Understanding how banks determine credit card limits can help you with your finances. This article will look at the different factors banks use to decide your limit.
What is a Credit Limit?
A credit limit is the maximum amount of money that a bank or financial institution allows you to borrow on your credit card. In India, this limit is determined based on several factors, including your credit score, income, and repayment history. For example, if your credit limit is set at ₹50,000, it means you can spend up to that amount using your credit card. One needs to manage their credit limit carefully, as using too much can hurt their credit score. Keeping a low utilization ratio can help improve your chances of getting loans in the future.
Factors Bank Consider When Setting Credit Limit
Now let’s look at the key factors that banks consider when setting your credit limit.
Credit History
Your credit history can be the most important factor considered when determining your credit limit, as it helps the bank or card issuer understand how risky or responsible you are as a borrower. If you have a good credit history and a decent credit score, it shows that you make your payments on time. This means you are more likely to get a credit card with a high credit limit. On the other hand, having a poor credit history, a bad credit score, or no credit history at all can result in a lower credit limit on your credit card.
Credit Utilization Ratio
The credit utilization ratio shows how much of your total credit limit you are using. It is calculated by dividing the amount you have spent by your total credit limit. If you regularly use most or all of your credit limit each month, the bank may see you as someone who needs a lot of credit. This could make them consider you a risky borrower and might result in a lower credit limit for you. Exceeding your credit limit can negatively impact your credit score. To keep a good credit history and get a higher credit limit, try to use 30% or less of your credit limit.
Income
Your income also plays a huge role in determining how much credit limit will be assigned to you. Individuals with a high income generally get a higher credit limit than those with an average or low income. Income doesn’t only mean your salary, but your other sources of earning can also be included in it, and sometimes your total family income can also influence the decision of a credit card issuer on determining your credit limit. You should show all your sources of income, not just your regular salary.
Limits on Other Cards
If you already have one or more credit cards, the issuer will look at the limits on those cards when deciding your new credit limit. It is likely that your new credit limit will be similar to the limits on your existing cards. For example, if your current credit limits are between ₹50,000 and ₹1 lakh, you probably won’t receive a limit of ₹5 lakh right away, although there are some exceptions. Most likely, your new credit limit will be between ₹1.5 lakh and ₹2 lakh. Having a good credit score can help you get an even higher limit.
Employment Status
Your current employment status can affect your credit limit. If you apply for a credit card while unemployed, even with a good credit history, banks may see you as a risky borrower because you lack a source of income to pay your bills. Whether you are salaried or self-employed can also influence how the card issuer decides your credit limit.
Other Factors
When deciding your credit limit, banks consider several factors, including your age and the bank’s economic condition. If you are very young, the bank might think you have less responsible financial behavior, and if you are older, they might see you as a risk. If the bank is facing financial difficulties, you may receive a lower credit limit, even if you have a good credit score.
How to Check Your Credit Limit?
Checking your credit limit is quite simple and easy. Here are a few simple steps you can follow:
- Online Banking: Most banks offer online banking services. Log in to your bank account or credit card app using your credentials. Once logged in, navigate to the section that shows your credit card details. Your current credit limit should be displayed there.
- Credit Card Statement: You can also find your credit limit on your monthly credit card statement. This is sent to you by email or regular mail, where the limit is usually listed at the top or in the account summary section.
- Customer Service: If you cannot find your credit limit online or on your statement, call the customer service number on the back of your credit card. A representative can help you check your credit limit and answer all your queries.
- Credit Report: Your credit report will also show your credit limit, but you may need to request a copy of your report from a credit bureau.
Bottom Line
Your credit limit is a key factor when using a credit card. It determines how much money you can borrow, and having a good credit limit can offer many benefits. With a higher limit, you can make larger purchases, have more freedom in your spending, and improve your credit score.
To maintain a healthy credit limit, always pay your bills on time and try to keep your spending below 30% of your total limit. This shows banks that you are responsible and trustworthy. Also, keep an eye on your credit score and make sure your income is stable. By managing these factors well, you can get a good credit limit and improve your financial options in the future.
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