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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!
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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,
Also, experts like Catherine McCarthy suggest that your credit utilization ratio should be kept at 30% or below for uninterrupted credit card usage.
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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:
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.
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.
This takes into account the amount and type of debt you owe to different institutions. Plus, how frequently have you been paying back?
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.
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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
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:
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?
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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:
Also, it is always a good idea to sit with your money provider. Really, talk it out and come up with a solution.
And of course, you then be able to craft a financial plan that will be in your and your card issuer's favor.
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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:
On the other hand,
Similarly,
In the opposite situation,
See: How To Avoid Financial Mistakes? Problems & Solutions!
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!