The credit limit is a maximum amount you can spend using your credit card. Banks or credit card companies offer you increased credit limit on your existing credit card, if you have a good repayment record or if your income has increased. But, many cardholders do not agree to increase their credit limit thinking that this might affect their financials. Increasing credit score will help you in many ways if you pay your credit card bills on time. In this blog, we will discuss various reasons why you need to opt for a higher credit score.
Your credit utilization ratio will be taken into account by credit bureaus while calculating your credit score. High credit utilization ratio will affect your credit score. If you have a high credit utilization ratio, banks will assume you are credit hungry. So, it is good to maintain the credit utilization ratio, less than 40%. In case your credit utilization ratio is more than 40%, you should ask your credit card issuer to increase your credit limit. Having a low credit utilization ratio will have a good impact on your credit score.
To encourage cardholders to spend using credit cards, banks and credit card companies offers number of rewards, offers, and cash-backs if they make a purchase through select merchants. Sometimes these offers and cash backs help you save a lot of money. So, if you have a higher credit limit, you can make a higher amount of credit card transactions and save a lot of money through cash backs and discounts. Do not make unnecessary purchases.
Higher credit limit helps you make big-ticket purchases and convert it into affordable EMI's at attractive rates. Also, many credit card companies waive off annual fees and offer free vouchers/air-tickets if you spend beyond a certain limit. So higher credit limit helps you to reach that limit quickly and avail those offers. But make sure not spend unnecessarily.
Credit card companies offer you a pre-approved loan against credit cards, if you have a good repayment history. Loan against credit card is just like a personal loan, as interest rates and tenure of the loan are similar. As loan against credit card is a pre-approved loan, it is disbursed within a day of application. But disbursal of personal loan takes some time.
The amount of loan in case of loan against credit card is based on the credit limit. You can avail a higher amount of loan, only if you have a high credit limit. Also, if you avail loan against a credit card, your credit limit will be reduced by the amount of loan availed.
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Having a credit limit in excess of your usual spending amount helps you in an emergency situation such as sudden hospitalization where large payments have to be made upfront.