The credit limit is the highest amount you can use from your credit card. Available Credits mean the remaining amount after you used from your credit limit.
You have opened a credit card and were approved, this doesn’t mean that you can use your credit card freely without any limit. You can’t do unlimited spending. Better to know the limit of your credit card, which means the maximum amount you can use for your works.
What is Credit Limit? Who decides this?
Your credit limit is the amount that you are granted to use on a credit card.
It’s decided by your lender, considering so many elements of your credits. They are; payment history, your credit score, salary and the current usage details about your credit limit.
If you don’t know exactly how to find your credit limit, you can check it in few places like in your online account or monthly bank statement.
What is meant by Available Credits?
Available credits mean the left amount in your credit limit on the credit card. This can calculate by subtracting the balance from your credit limit from any given card. Imagine that you pay the balance of the last billing cycle and let’s say your credit limit is $5000. This month you spent $1500, which means your available credit is $3500. Don’t forget that exceeding your credit card is not a good idea.
If you definitely fully covered amount of your credit card amount every month, it will reset back 0% for credit utilization for that card. But if you don’t cover the full amount you have to be aware of your credit limit in order to protect your credit score or to be away from any debt that’s hard to recover soon.
Apply 30% rule of credit utilization.
Credit utilization is the usage amount of your credit limit. It’s significant to know your credit limit because it’s highly affecting your credit utilization. This is a major part of your credit score and it may affect your finances in a number of ways.
It’s not bad to keep your credit utilization at a lower lever because always the best score is earned by the person with lower credit utilization. But if you tend to use too much from your credit limit, the potential lenders may point out you as a higher risk, which somewhat makes it difficult to get a car loan or home loan later. Even you can check your credit utilization per card or overall.
The best method is to follow the 30% rule: This means use only 30% of your credit limit to keep your debt-to-credit ratio stable and strong. Lower than 10% is even much better for your credit score.
Let’s look at how this rule works; let’s imagine that you have a card with a $1000 credit limit and 40% of that is $300, so it’s better not to have a balance of more than that at any time. So, to avoid this circumstance make sure to do small payments throughout the month.
Improve your credit limit
Credit limits are not the same amount throughout your account lifetime, it’s also get changed as your finances do. It’s better to know when to ask for a credit limit increase. You may tend to ask increase in credit limit if you got a raise recently, have good credits or have a good record of making payments on time.
Anyway, before asking for a credit limit increase, consider the pros and cons of it.
Advantages of asking credit limit increase.
- This will provide more adjustable to your budget
- The sudden increase in credit limits without any good balance in your credit card may reduce your credit utilization.
Disadvantages of asking credit limit increase
- Increased in credit limits let you a chance to spend more increase the debt which is hard to settle down
- The credit check which we used often to affirm eligibility may scratch your credit score. Ask your card issuer if you experienced any such increase in your limit without any proper inquiry on your credit.
After having good knowledge about the pros and cons and you finally decided to increase your credit limits, you can request it via few methods. The simplest way to do that is through your online banking or by phone.
If you are keen on your credit utilization and you notice that the credit utilization doesn’t go over 30%, there are some other ways to manage your credits to make sure that it’s doing good. Making payments on time will make your credit score stable and establishing automatic payment can help in this. If you want to make sure your credits are secure and healthy you can mix up credits, be aware of how old your account is (a long record with a good credit usage is a plus mark), and dividing your application may help you to do that.
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