When you apply for a credit card, the bank assigns you a credit limit, which is the maximum amount you are allowed to spend or borrow on your card. This limit acts as a mutual safeguard, as it prevents you from overspending while ensuring the bank doesn’t extend more credit than you can realistically repay.
Banks assess several factors to set your credit card limit during the application process, and they might adjust the limit over time based on your credit usage and financial behaviour. Let’s delve into the factors that determine your limit, what happens when you exceed it, and tips to increase this limit.
Factors that determine your credit card limit
Credit score: A high credit score indicates that you have a history of handling credit responsibly, making timely payments, and maintaining a low credit utilisation ratio. Banks mostly prefer to offer higher credit limits to individuals with strong credit scores as it signifies lower risk.
Income level: The bank might grant you a higher limit on your credit cardif you have a good income and stable employment status. These aspects prove you have a better ability to manage and repay your financial obligations.
Existing debt: A higher amount of existing debt can lower your available credit limit as it increases your financial risk to the lender.
Age and credit history length: Younger individuals or those with a shorter credit history may receive lower limits initially. However, as you build a longer credit history showing responsible credit behaviour, your limit may increase over time.
What happens when you exceed your credit limit?
Here’s what can happen if you go over your credit limit:
● Most banks allow you to exceed your credit card limit but may charge an over-limit fee.
● Exceeding your credit limit can also impact your credit score, as it raises your credit utilisation ratio.
● Consistently exceeding your limit may lead to the bank reducing your credit limit, which can impact your spending flexibility.
How to increase your credit limit?
Pro tip: Choose the right credit card
Opt for a credit card that has flexible requirements for obtaining a high credit limit and advanced features. The IndusInd Bank Legend Credit Card is an excellent choice to enjoy higher spending flexibility along with a world of convenience, like:
Lifetime free credit card
No need to worry about any annual or joining fees.
Reward points
Earn 2 reward points for every ₹100 spent on weekends and 1 reward point for every ₹100 spent on weekdays.
Discounted foreign currency markup
Enjoy a discounted foreign currency markup of 1.8%.
Fuel surcharge waiver
Get a 1% waiver on fuel surcharge at all petrol pumps across India.
Auto assist
24/7 assistance for roadside repairs, accident management, medical help, emergency fuel supply, flat tyre services, lost key service, battery services, and towing.
Travel benefits
Use the complimentary priority pass to gain entry to more than 600 lounges across the globe.
Apply online and obtain a credit card for free with IndusInd Bank!
Additional tips to increase the limit for credit cards
Improve your credit score: Pay bills on time, reduce existing debt, and avoid applying for multiple credit cards in a short span. Over time, these practices can improve your credit score and may make you eligible for a higher credit limit.
Track your credit utilisation ratio: Try to keep your usage below 30% of your limit. Lower utilisation rates indicate responsible credit management.
Keep your income details updated: If your income has increased since you got your credit card, updating this information with your bank may lead to a credit limit increase.
Lower your monthly debt obligations: Lowering your monthly debt payments can improve your debt-to-income ratio and indicate better financial health. This may make you a more attractive candidate for a higher credit limit.
To sum up
As you can see, several factors, including your credit score, debt-to-income ratio, income, and credit history length, play an important role in determining your credit card limit.
If you exceed the limit, you risk incurring fees, damaging your credit score, and facing reduced limits in the future. To avoid these issues, apply for a credit card with a bank that offers a high credit limit. Moreover, follow prudent financial habits, such as paying bills on time, keeping credit utilisation low, and managing debt responsibly.
These smart practices may make you more eligible for a higher credit limit while improving your overall financial health and creditworthiness.
