A credit card is not just a means of spending, but it also shows your overall financial health. Every card has a fixed limit, i.e., credit limit, which is decided by the bank or NBFC by looking at your income, spending habits, and credit score.

Often, people use the card but do not know about the limit and the special things related to it. Due to this, many times they have to face more expenses, interest, and penalties. Let us know about the credit limit and the 5 important aspects related to it, by understanding which you can use your card wisely.

1. What is a credit limit?

Credit limit is the maximum amount that the bank or NBFC allows you to spend. For example, if your limit is ₹ 1 lakh, then you can make purchases or cash withdrawals up to that much in a month. This limit is based on your income, credit score, and repayment history.

2. Credit Utilization and impact on credit score

Credit Utilization means the percentage of your limit you are using. Experts believe that it should be kept below 30%. For example, if your credit card limit is Rs 1 lakh, do not make purchases of more than Rs 30,000. The more you use the limit, the more your credit score can fall. Low utilization shows responsibility and helps in increasing the score.

3. Can you spend more than the limit?

Some banks provide such a facility that you can spend more than your credit limit, but for this, you have to pay an over-limit charge. Not every bank provides this facility, and even where it is available, the charge can be very high. Therefore, if not needed, this option should be avoided. Anyway, if you spend so much through a credit card, then your credit utilization ratio will become very bad.

4. Limit according to salary
The limit of a credit card depends to a large extent on your salary. Usually, banks give a credit limit of up to 2 to 3 times your monthly salary. For example, if your monthly salary is 50 thousand rupees, then you can easily get a credit card with a limit of one to one and a half lakh rupees. Not only this, your credit score and repayment history are also taken into account while issuing a credit card.

5. Can the limit be increased or decreased?
Yes, it is possible to increase or decrease the credit limit. To increase the limit, you need a good credit score, and it is important to pay the card bill on time. Banks often offer to increase the limit themselves. On the other hand, if you want the limit to be low so that there is control over expenses, then you can request it from the bank.

Conclusion
Understanding the credit limit is very important for every card holder. Proper use of the limit can strengthen your credit score and open the way for further loans. But spending more than the limit or wrong management can spoil your financial condition. Therefore, always use the limit wisely.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.