Understanding Credit Card Limits: What You Need to Know
5 mins read

Understanding Credit Card Limits: What You Need to Know

Understanding the impact of your credit card limit on your finances is very important if you rely on cards for making everyday payments. This is because the limit on your credit card is the maximum amount you can avail of when making a transaction. This way, it restricts the availability of funds. 


Moreover, it affects your repayment, as using up more credit means a higher payment at the end of the billing cycle. It’s a good habit to save some of your limit in case of an emergency, as a credit card gives you instant access to funds. Considering all this, knowing what the credit card limit is and how it works is important. 


How Does a Credit Limit Work? 

Your limit is the maximum amount you can withdraw from your credit card. Whatever your credit limit may be, you can withdraw an amount equal to it in one transaction or multiple transactions. 


As you withdraw funds, your available balance decreases. You can restore it by paying your credit card bill by the deadline. In the next billing cycle, you can access the full limit only if you do not have any dues.


How Issuers Decide Your Credit Limit 

This limit is not randomly assigned but depends on many factors that affect your creditworthiness. Here are all the factors that lenders consider when deciding your credit limit. 


  • Your net annual income

  • Your age at the time of application

  • All your existing debts and liabilities, if any

  • Your repayment capacity 

  • Your history of timely repayment

  • Your credit score or rating 

  • Type of credit card you have applied for 


How it Differs From Available Credit

Available credit is the amount left over a few transactions, which is different from your total limit. To better understand this, let’s assume you have a credit card with a limit of ₹2 Lakhs. 


Let’s say you made five transactions of ₹10,000 from your credit card, so you’ve used a total of ₹50,000. In other words, you’ve used ₹50,000 out of your total credit limit. After these transactions, your remaining credit limit will become ₹1.5 Lakhs, which is your available credit limit.


As you continue to pay your credit card bills on time, your credit limit will be replenished to the original amount of ₹2 lakh. You can use this amount for your everyday or big-ticket purchases, and the cycle continues on. 


How Does It Affect Your Credit Score?

In addition to giving you more purchasing power, a high credit limit can actually improve your credit score. When you get a credit card with a higher limit, it is easier for you to maintain a lower credit utilisation ratio. 


Let’s say you have a fixed amount of credit available, and you use only a small percentage of it. This keeps your credit usage down, and thus you have a lower utilisation ratio. If you swipe your credit card until you use up all of the limit every month, your utilisation ratio is high. High utilisation of credit brings down your CIBIL score. 


This is why a higher credit limit helps you maintain a low credit score, which is recommended for a good credit score. With a limit that is higher than you need, you can easily control your utilisation and boost your score. 


Practical Tips For Getting a Higher Credit Limit

Now that you understand credit limits and the role they play in your financial health, here are some tips to get a higher limit. 


  • Check when the last time your issuer gave you an annual increase and showcase timely payment of bills when you ask for a boost in your credit limit

  • Provide your issuer with proof of higher income as you get higher paychecks 

  • Improve your credit score by paying your bills on time and reducing your credit utilisation ratio

  • Avoid maxing out your credit cards, as it can make you appear credit-hungry

  • Apply for a new credit card with an issuer who gives you a higher limit 


With these tips, you can easily make the required changes to avail of the maximum credit card limit suitable for your repayment capacity. One way to repay on time and spend as per a budget is to get a credit card that gives you all the control at your fingertips. 


That’s exactly what you can experience with the One Credit Card. Its powerful mobile app makes it easy for you to set budget controls and get reminders when you near the limit for different spending categories. You can also earn 5X rewards on your top two spending categories. 

With an instant credit card activation process and a number of discounts on dining, shopping, and more, this is a card that allows you to save every step of the way. Apply online to avail of this lifetime-free credit card today!