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One credit card swipe here, one swipe there, And, you suddenly realize…
YOU’RE MAXING OUT YOUR CREDIT CARD LIMIT ALREADY!!!
But does it matter anyway? Can it impact your Equifax credit score? Or, more appropriately, can it affect your financial planning and investment?
Well, the simple answer is… yes!
Therefore, it is important to take a deeper look at why neglecting your credit limit turns your financial goals upside down even at the youngest age.
So, let’s begin without further delay!
Credit Card Limit – Essentials & Basics!
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You just swiped your credit card for traveling or at a grocery store to shop for that buy 1 get 1 sale and suddenly you received an alert, “Red Flag! Your credit limit is almost utilized!”
And… there goes your mind wondering, “what exactly is that?”
No need to worry, we got you covered!
To write it in simple words,
| “Credit card limit is the fixed amount of money you are allowed to spend using your card on a monthly basis.” |
But, wait, there’s more to it!
This credit card limit is often set by your card issuer and you have to pay the consumed amount in your next month’s billing cycle! Moreover,
- Using your full credit limit can increase your credit balance.
- The credit limit can range from $1000 to $10,000 generally.
- The limit can be changed, depending on your financial profile.
Also, experts like Catherine McCarthy suggest that your credit utilization ratio should be kept at 30% or below for uninterrupted credit card usage.
4 Factors Directly Influencing Your Credit Limit
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Now that you are done with some of the basics related to your credit card limit, it would be naive to miss out on “how credit card limit is determined after all.”
So, to help you take a mindful dive into your finances and credit card usage, here are some factors that play a significant role in determining your credit limit.
These are named as your:
1. Credit History
How old your credit information is, how many accounts you have, whether they are active or non-active, how frequently you utilize your available balance, and a lot more – all of this comes into consideration while setting the limit.
2. Credit Utilization Ratio
This determines how financially healthy you are and how less you rely on your credit card to meet monthly expenses. This can also determine whether you are a “low-risk” or “high-risk” borrower.
3. Debt That You Owe
This takes into account the amount and type of debt you owe to different institutions. Plus, how frequently have you been paying back?
4. Income On A Monthly And Yearly Basis
This also determines your financial standing and lets the limit setter know how well you can manage your card-related fees and payments.
Other factors also involve your financial health in the eye of the credit card issuer and how well your country’s financial systems are working.
Should You Take Your Credit Card Limit Seriously?
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Well, the simple answer is a BIG YES.
And it leads our credit card tips to answer your next question, “why does your credit card limit matter after all?”
So, here’s the explanation:
| Managing your credit card limit directly affects your Equifax credit score and financial portfolio in the longer run. |
If taken care of, credit card limit can
- Lower the interest charges you are paying
- Help you secure better loan rates
- Help you curb your spending power
- Let you use your funds in an emergency
- Reduce the amount of debt you owe
Also, having a positive history of credit card limits helps in maintaining a stable financial profile in front of the money-lenders eye.
On the other hand, if not taken care of, it can damage your credit profile and reputation. Here’s the downfall, it can:
- Put your credit score in danger
- Put you on the “least reliable customer” list
- Take up months or even years to get a loan approved
- Decrease your credit card limit
- Charge you the highest interest rate among others
Or, in some cases, it can result in account closure if you are frequently maxing out your credit card and are unable to make each billing cycle’s payments.
See: What To Do When Credit Card Expires?
What To Do If You Have Maxed Out Your Credit Card!
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If you are someone new to credit card usage or have maxed out your credit card as a regular user, take a deep breath and assure yourself that there’s a way out!
Here are some practical steps from experts at Plastk that will help you recover your financial profile:
- Contact your card issuer as soon as possible
- Pay your outstanding payment as much as you can
- Buckle up your credit score using a secured credit card with 0% APR
- Sign out of any money-draining services
- Revisit your monthly budget
Also, it is always a good idea to sit with your money provider. Really, talk it out and come up with a solution.
- Explain your situation in case of a job loss or other financial emergency
- Then, find a common ground based on your healthy Equifax credit report.
And of course, you then be able to craft a financial plan that will be in your and your card issuer's favor.
Credit Limit - Things You Need To Know
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Your financial life is changing continuously - new bills are added on a regular basis while you still struggle to manage all the necessities. So, depending on your expenses and income you might want to increase your credit limit.
Is that a good idea? What’s the catch? Here are some pros and cons or dos and don’ts:
- You can make big purchases all on your credit card thus getting a good reward for it
On the other hand,
- An increased credit limit means more responsibilities as you might overspend
Similarly,
- You can be at peace if there’s a financial emergency as you can simply swipe the card to fulfill your need
In the opposite situation,
- The interest will also increase on the card which means you’ll have to repay more.
See: How To Avoid Financial Mistakes? Problems & Solutions!
Conclusion
As the popular saying goes, “with every professional opportunity comes responsibility.”
The same goes for your credit card usage, credit limit, and your credit score.
If you think that getting a credit card is all that it takes to spend as much as you want, then a credit limit is here to keep your finances in check.
It not only helps you stay on track with your current financial goals but also aids in building a secure future that you will enjoy even in your post-retirement days.
So, what are you waiting for? Give this guide a read and find all you need to know about your credit card limit.
Lastly, don’t forget to check Plastk Blog for more such helpful content!
