Credit Card Limit: A higher credit limit improves your credit utilization ratio, which leads to a better score. By smartly increasing your limit, maintaining low utilization, checking your credit report regularly, splitting large expenses, and setting overuse reminders, you can strengthen your financial position.
Credit Card Limit: Credit card limit affects your credit score. But very few people know this. Generally people give outstanding amount and payment dates to improve their credit score. So let’s know why your credit limit is fixed and how much it affects your credit score.
What is the relation between the two?
Credit limit is the maximum amount you can borrow from your card. It is determined on the basis of your income, credit history and loan payment habits. If your credit limit is high, it helps in keeping your credit utilization ratio low. This is the ratio that shows how much of the available credit you are using. Keeping your credit utilization below 30% will improve your credit score.
What is the main factor of credit score
Utilization ratio plays an important role in the calculation of credit score, especially for new credit card users. For example, if your credit limit is Rs 1 lakh and you spend Rs 40,000, then your utilization ratio will be 40 percent, which can harm your credit score. But if your credit limit increases to Rs 2 lakh and the expenditure remains Rs 40,000, then the ratio will decrease to 20 percent, which will increase your creditworthiness. Therefore, it is always beneficial to keep credit utilization below 30 percent.
Ways to Manage Credit Limit Properly
So keep these things in mind—
- Request credit limit increase in a smart way
- Maintain low utilization
- Check credit report regularly
- Spread big expenses across multiple cards
- Set overuse reminders
