What is Credit Limit?

17 January, 2024

Credit Cards have become widely used tools for making online and offline purchases and payments. With a Credit Card, you can spend conveniently, flexibly, and securely without having to carry cash. However, to maintain a healthy financial balance, it is important to understand the basic aspects of a Credit Card. A Credit Card essentially gives you access to a line of credit, enabling you to borrow money up to a specific limit. This limit is often referred to as the credit limit. Read on to know more about the concept of credit limit in detail.

What is a Credit Limit?

The credit limit is the maximum amount that a bank or financial institution allows you to spend using your Credit Card. It acts as a financial cap on how much you can borrow on your Credit Card. Upon reaching the maximum credit limit, you cannot borrow more until you clear your outstanding dues. Some card issuers may let you borrow beyond the credit limit but charge you an over-limit fee. To avoid incurring such additional fees on Credit Card bills and to build a good credit history, it is crucial to spend within the credit limit on your card.

How Credit Limits Work – An Example

Let us assume that your bank grants you a Credit Card with a credit limit of ₹1 lakh. Thus, you can make payments and purchased up to ₹1 lakh during a given credit cycle on your card. Now, let’s say you purchase a new smartphone worth ₹30,000 using your Credit Card. Your available credit limit for this cycle will now reduce to ₹70,000. You can spend within this limit for the rest of the month. At the end of the month, you will receive a Credit Card statement, which will show the total amount spent as outstanding dues. When you clear the outstanding dues, your credit limit is restored back to ₹1 lakh.

Factors Determining the Credit Limit on a Credit Card

Credit Card issuers consider the following factors to determine your credit limit:

• Your Age
  
  Credit Card issuers typically offer a lower credit limit to young borrowers, who are yet to build their credit history. Once you start building your credit history with frequent usage and timely bill repayment, your issuer is more likely to increase your credit limit.
  
  

• Income Level
  
  Your income is an important point of consideration for Credit Card issuers. When your income is low, so is your credit limit. However, as your income increases with every passing year, Credit Card issuers readjust your credit limit, often enhancing it. This is because your purchasing power, and ability to repay your bills increases with an increased income.
  
  

• Credit Card Type
  
  The type of Credit Card you have also influences the credit limit assigned to you. Basic or low-tier Credit Cards often have lower credit limits, whereas premium and special-category Credit Cards come with higher credit limits. However, to be eligible for Credit Cards with higher limits, you must fulfil certain eligibility criteria laid down by the card issuer.
  
  

• Existing Debts
  
  The amount of debt you currently have, such as loans or outstanding Credit Card balances, can affect your credit limit. Credit Card issuers consider your existing debts when determining how much additional credit they are comfortable extending to you. A lower debt-to-income ratio implies a healthy financial position, which positively impacts your credit limit.
  
  

• Credit Score
  
  Your credit score is a numerical representation of your creditworthiness. A higher credit score indicates lower credit risk, which results in you obtaining a higher credit limit. Factors such as on-time clearance of dues, low credit utilisation, and diverse credit history contribute to a higher credit score. You can keep a check on these aspects to get a Credit Card with a higher credit limit.
  
  

Tips for Managing Your Credit Limit

You can manage your credit limit without incurring an over-limit fee by following these practices:

• Track Your Spends
  
  Keeping track of your transactions and monitoring your spending habits helps you stay within your credit limit. You can use mobile apps and online banking tools provided by your Credit Card issuer to efficiently track your spends and plan your purchases accordingly.
  
  

• Keep Credit Utilisation Low
  
  Credit utilisation implies the percentage of the utilised credit limit out of the total credit limit provided to you. Higher utilisation makes you appear credit hungry whereas lower utilisation demonstrates that you are not entirely relying on your Credit Card for payments.
  
  

• Make Timely Payments
  
  By consistently paying your Credit Card bills on time, you can showcase responsible financial behaviour. So, if you wish to enhance your credit score, you should consider repaying your outstanding Credit Card dues in full, instead of paying the minimum amount due.
  
  

• Review Your Credit Card Statement
  
  It is a good practice to review your Credit Card statement each month. Doing so helps you track your spends and plan a budget that aligns with your credit limit. You can also check what is the credit limit available on your card to spend consciously.
  
  

• Take Up the Credit Limit Increase Offer
  
  If you repay your bills on time, your Credit Card issuer may offer an increased credit limit. Even if you do not need it, you should take up this offer and get a credit limit enhancement. Doing so may prove helpful during sudden financial emergencies, allowing you to manage unplanned expenses easily.
  
  

Enjoy a Higher Credit Limit with HDFC Bank Credit Cards

When it comes to maximising your purchasing power with a good credit limit, HDFC Bank Credit Cards provide excellent opportunities. With HDFC Bank, you can explore a wide range of premium Credit Cards like the Regalia Gold Credit Card, Infinia Credit Card, Diners Club Premium Credit Card and more. These cards come with higher credit limits. You can also request a credit limit increase on your existing HDFC Bank Credit Card by filling and submitting a limit enhancement form online.

Get the credit limit you desire by choosing the right HDFC Bank Credit Card.

 *Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Credit Card approvals at the sole discretion of HDFC Bank Limited. Credit Card approvals is subject to documentation and verification as per Bank's requirement. Interest rates are subject to change. Please check with your RM or closest bank branch for current interest rates.