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 What is the meaning of Credit Limit?

What is the meaning of Credit Limit?

Owning a credit card is perhaps the easiest thing to do. Using it wisely isn’t. Because we can buy just about anything we want with a mere swipe, we never really understand the impact of how much we spend till the point the bill arrives. Nor do we understand the various terms related to a credit card so that we may use it with a little more caution. Probably, the one term we all card users need to be aware of would be: credit limit.

Your Credit Limit is the maximum limit upto which you can spend using your credit card. For instance, although you may be given a credit limit of 1 lakh, it doesn’t necessarily mean you have to spend the same. In fact, it would be ideal if you don’t spend more than 50% of your credit limit.


How is my credit limit determined?

Your card’s limit will vary almost every month. This depends on a number of things like:

- Income

- Repayment behaviour

- Spending pattern

- Bank’s norms and policies

- Other active emis ( home loan, personal loan etc)

A combination of all the above factors (and not just any one of them exclusively ) is taken into consideration while assessing an individual’s credit limit. Also, if you are running other loans, then there is a good chance that your credit limit will be further reduced.


What it means to my financial future?

Earning a high salary doesn’t mean anything if you fail to even out your expenditures and savings. As long as you are well within your credit limit, you can

- easily manage your finances

- get your loan sanctioned easily

- improve / increase your cibil score

The charges levied on your credit card bill at the end of every month is not just expensive, but it is unnecessary and can be definitely avoided. Which is why it is important you are conscious of your credit card expenditures and pay your bills (in full amount) regularly.

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