Credit limit, as the name suggests, is the maximum purchasing capacity provided by the lending institutions on your credit card. The banks determine a credit limit on your credit card based on your income level, credit score and balance in your accounts. Does having a reasonable limit affect you in any way?
Here are some benefits of increasing your credit limit: A credit card with a high credit limit has the following benefits:
- Low credit utilization: If you have a credit limit of Rs. 1 Lakh and you have used Rs. 40,000 credit limit of your card and you decide to double your credit limit and make purchases for the same amount. In this scenario, it will eventually improve your credit utilization ratio as the credit limit used against the total credit limit will increase. A low credit utilization ratio indicates that you will pay your credit bill on time.
- Increase in the credit score: With the low credit utilization ratio, you can certainly improve your credit score. Also, higher limits on your credit card mean that you have a good credit history. Both factors help you to increase the credit score.
- Multiple Cards not required: While most people assume that having multiple credit cards with a lower credit limit is far better than having a single credit card with a high credit limit. However, it may not be accurate because managing multiple credit cards is a complex process. There are not only chances of overspending, but you may also forget to pay your credit bills. It can result in having a poor credit score.
- Easier to Get Loans: Having a credit card with a higher credit limit indicates that you can easily avail the loan against your credit card. It may be because having higher credit limits suggest that you can manage your funds judiciously. You can also get the loans at attractive interest rates if you have an upper credit limit in your credit card.
- More Rewards: Higher credit limits on your credit card means that you can get more rewards on your credit card. You should use the credit card for utility functions such as paying bills etc. It can help you to earn various rewards on your airline tickets, dining etc. These rewards can thus help the cardholders to reduce the spending on their credit card.
- Customer Protection: Most of the people may not be fully aware, but a credit card with high credit limits protects you from price protection, extended warranty, coverage for lost goods, etc. Thus, you can wisely use your credit card in case of any trouble.
- Helps during Emergencies: Having a credit card with high credit limits means that you can use the credit card in case of any emergency. For instance, if you have any medical emergency and you need funds, then a credit card may tackle your financial crunch. Also, in case of any other crisis, you can prevent yourselves from borrowing money from others if you have a credit card with higher credit limits.
Thus, undoubtedly, a reasonable credit limit can help you to improve your credit cards but getting high credit limits on your credit cards involves multiple enquiries from banks, which can affect your credit score. Also, there are chances of overspending if you have high credit limits. Thus, it is essential that you use your credit card wisely.a