One of the most important concepts Related to the use of credit cards is the credit limit. Most of the customers are not aware of the credit limit or don’t understand completely what it means. This lack of understanding sometimes causes them to lose money and face a difficult situation.
The term credit limit means the maximum amount of money any bank or financial company will lend the credit card owner. This limit is set by the bank or the financial Institute after thoroughly reviewing the status of the credit card applicant.
The credit card limit is affected by the credit score, and credit score is also influenced by the credit limit. Normally a high credit limit is given to customers who are considered low-risk spenders. Whereas high-risk spenders usually get a low credit limit, because the bank supposes that a high-risk spender might not be able to return the borrowed amount on time. I think if u want instant cash then Myzaxbysvisit is the best option.
How A Credit Limit Is Set?
The credit card limit is set by the banks or the financial Institute that lends the money to the credit card owners. These institutes will examine various factors that can influence the ability of the borrower to return the loan. These factors might include the credit rating of the borrower, monthly income, history of loan payments, and various other factors. If you ever need to payonlineticket then here is the way to go.
Both secured and unsecured credit cards have credit limits associated with them. For unsecured credit cards, the bank or the financial Institute looks quite thoroughly into the history of the owner before deciding the Credit limit.
However, for secured credit cards setting the credit limit is quite easy approximately. In the case of a secured credit card, the credit limit is backed by the equal amount of collateral deposited in the bank in some way.
For example, if you apply for a line of credit backed by some commodity value called mom, the credit limit would be equal to the equity of that commodity. In case the value of the commodity rises the credit limit will increase whereas if the value of the commodity drops the credit limit will also drop.
Is There Any Difference In Credit Limit And Available Credit?
Yes, the two things are quite different than each other and proper understanding of both terms is necessary for efficient use of the credit card. A credit limit is the maximum amount of credit that a borrower can use within a billing cycle.
However, the available credit is the amount of the credit left for usage after the borrower has spent a certain amount. For example, if the credit limit of a certain credit card is $2000, and the owner has used $500, the then available credit limit would be $1500.
Note: The credit limit offered by the bank or the lending institute is flexible, and can be changed by the lender. If the borrower is punctual in his payments, the limit may be increased, whereas it may be decreased for careless, high-risk customers.
Effects Of The Credit Limit
A high credit limit is tempting and may convince you to use more than you can pay for. This can seriously damage your credit score and render you unable to avail of several offers available for customers with good credit scores.
It has been observed that some responsible credit card owners request the bank to reduce their credit limit so that they can’t overspend.
So, the credit limit defines how much cash you can use via credit card, and a proper understanding of the term and risks associated with it can help you better utilize your credit card.