What is a Credit Card Limit
A credit card limit
stands for the maximum credit amount that a creditor will extend to a cardholder for the given life of credit. The credit limit is the maximum amount a borrower is allowed to take out at once.
Credit card companies
determine credit limits by looking at various factors. Among them are: credit rating
, ability to pay back debt, organizationís cash flows, as well as the credit standards adopted by the credit card company. The recoverable assets of the debtor are also taken into account when determining what the credit limit will be. In many cases, the imposed limit remains fixed over the productís life, except if the credit card company offers to raise the limit. If you want to have your credit limit
increased, this can be done by just calling your bank. However, this is true only for clients who have an excellent payment history and credit score. To get a credit limit increase, it is a good idea to pay down your outstanding balance so that it is less than thirty percent of the credit card limit. The monthly payments should be over the minimum payment. If you havenít used the credit card much, it is better to start using it so that you can establish positive credit history. To get a credit limit increase, call customer service and explain them your responsible use of credit and good payment history.
In general, credit card companies look at two main factors in order to establish your credit limit. These are gross annual income and credit score. In addition, the company may also employ a custom score or behavior score which is specific to this credit card company. This score is based on how well you have interacted with the credit card issuer. It is based on whether you used cash advances or made late payments, whether you paid the account balance in full, and so on.
Given that the credit limit is the maximum you can borrow, exceeding this amount will result in penalty or over the limit fee. In addition, your credit card company may increase your interest rate, and you will be charged the default rate. Getting close to your limit and exceeding it affects your credit score. Your credit utilization is determined by how close you are to your credit limit, and this counts as 30 percent of your credit score. Your credit card utilization will be low if your card balance is high.
If you exceed your credit limit, the over the limit fee can be as high as $40 or even more. The credit card company may charge this fee for up to 3 billing cycles. Moreover, the default rate can be as high as 31 percent. This will make it very expensive to carry a balance beyond the interest-free period.
One thing to do so that you donít exceed your credit limit is to avoid opting-in. Over-the-limit transactions will not be processed if you donít tell the credit card company to do so. They will be declined, and you donít risk being charged. Naturally, you should know what your credit card credit is. It is easy to exceed your limit if you have no idea what it is. Check your billing statement to find it out. Keep in mind that some credit card companies lower and raise credit card limits from time to time. So, you will be wise to monitor your credit limit on a regular basis. Finally, you may want to enroll in balance alerts. Some card issuers send alerts to clients whenever their balance reaches certain dollar amount or percentage of the credit card limit. If your issuer offers this service, it is a good idea to sign up for it.