We all know our credit card limits imposed by our respective banks on the cards we purchase. However, certain terms like total limit, available limit and reward points may confuse users who are new to the world of credit cards.
Credit limit, as the name suggests, refers to the maximum amount of money or the purchase of limit that has been set by the credit card company or the bank for you to spend. You cannot spend beyond this limit. For example, if your card has a credit limit of Rs 50,000, you can spend up to the said amount and not go overboard. The credit limit varies from card to card, as well as, from bank to bank.
How is your credit limit determined?
According to Bankbazaar.com, banks put in a lot of effort to determine a credit card limit for you. Banks need to be sure about your ability to spend and pay. When you apply for a credit card, the bank looks into your account and collects various details pertaining to your sources of income, as well as, your loans. It also looks into your credit score and loan history, repayment history and usage habits among others.
Once it has acquired all the information, it multiplies your gross monthly income by, say 2.5 or 3 times, depending on the risk involved and the bank’s credit policy. It then deducts your fixed monthly obligations including your monthly needs, EMIs towards loans, and others from the multiplied amount.
For you to expect a higher credit card limit, your monthly obligations should be less, leaving with a decent amount of unused cash in your account. If most of your money is spent in a month, then you may be given a card with less credit limit and vice versa.
What are total credit limit and available credit limit?
The total credit limit and credit limit, in most cases, is the same. It is the maximum credit card limit available for you to spend. However, the available credit limit, on the other hand, is the difference between the total credit limit and the amount you have spent on your card.
For example, if your credit card limit is Rs 50,000 and you have spent Rs 10,000, then your available credit limit is Rs 40,000, which is the amount available for spending on the card.
While your total limit stays the same, unless the bank makes any changes in its policy, your available credit limit keeps reducing as your spending on your card increases.
As banks reserve the right to decide on the type of credit card you get based on your eligibility, you may sometimes get a credit card that is different from the one you have applied for. Therefore, once you receive the card, make sure you get yourself acquainted with the features and the credit limit of your card.
How to check the credit limit and available credit limit?
If you are using a single card or multiple credit cards, it is very important to know the total and the available limit in your card (s) to keep a track of your spending. It helps you avoid over-limit charges, which the bank can levy once you cross the specified limit on your card.
You can check your credit card’s total and available limit by these three ways:
First Published: IST