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What Is Credit Limit?
A Credit limit is the highest amount an individual should be borrowing on a credit card that belongs to him. The bank sets the credit limit and this is usually done while sanctioning the credit card. Several factors are considered while deciding the credit limit.
How Is the credit limit decided?
The person who has issued the credit card will decide the credit limit. The credit limit is set by considering the applicant’s credit score.
The credit card limit is decided by keeping in mind the credit score and history because it helps in understanding the ability of the borrower to repay. If you have a low, your credit card limit is also going to be low. Though the banks have the authority to increase the credit limit, they also have a right to decrease the credit limit if you have made a default while making the repayment of the loan or credit card.
Procedure to Determine Credit Limit
1. The person who has applied for the credit card should fill up a form that includes details regarding his income, KYC documents while the application of credit card is made.
2. The borrower verifies the applicant’s CIBIL score of the applicant and assesses their credit behaviour as well as credit history.
3. If the CIBIL Score of the applicant has met the criteria for cut off and the lender is satisfied with the credit history of the applicant, then the credit limit is decided on the basis of the available information.
It is usually known that CIBIL score is the main factor in determining the credit limit, some other factors are also responsible for determining the credit limit. These factors are the history of payment, the income and the total accounts that belong to an individual.
Example: Suppose you have an income of Rs.70, 000 and your credit limit is Rs.1, 10, 000. Then you will surely wonder why your credit limit is less when compared to the income you are earning. In such a scenario, you should cross check your credit score and credit history.
Reasons for Low Credit Limit despite High Income
- If you have always kept wondering why your credit limit is low in spite of having a high income, then you need to recheck your credit score and credit history.
- If an individual has a low credit score, his credit card limit will be low too.
Ways to Increase Credit Limit
Basically, there are some steps to be followed by the individuals if they want to increase their credit limit. These steps are listed below
1. If the bank is satisfied with an individual’s credit history, then the credit limit of that individual can be increased.
2. The individual should avoid defaulting on any of their payments
3. The right balance of Secured and Unsecured Loans
4. Stay away from applying for numerous credit cards simultaneously
5. Always try to maintain a good credit score
6. Opt for a longer loan tenure.
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