Credit cards have a limit to the amount of money you can borrow to make purchases and other transactions. This is called a credit limit.
Credit limits are provided to the cardholder based on different factors, such as credit score and credit history. Once you’ve proven you are a reliable borrower, your credit limit increases. Navigating your credit card credit limits effectively can be a challenge for many.
This guide will show you how to manage your credit card limits effectively and how to increase your credit limit without incurring high fees.
How is Your Credit Card Credit Limit Determined?
When you apply for a credit card, the bank or issuer decides your credit limit by assessing your credit score and history.
Other factors help determine the amount of credit limit that you’ll be introduced to.
These include your annual income, current debt, the amount of credit in your name, and even your employment status, which plays a role in determining your credit limit.
Be Careful With Your Credit Limit
One of the primary reasons many new cardholders are immediately put off by having a credit card is that they spend their credit limit immediately.
They max out and end up paying a lot of charges at the end of the month or when their statement comes. Pay attention to how you use your credit limit.
Make sure that you hit the right credit utilization ratio to avoid extra charges that you may not be able to afford just yet.
Stay around 30% credit utilization or spend only 30% of your total credit limit for the first few months of having a credit card.
Also Read: These Are the 8 Most Requested No-Fee Credit Cards in the United States
Only Make Bigger Purchases When You’re Ready
You’ll know when you’re ready to make big purchases when you know you can pay for it in full. You should also get into the habit of paying your credit card dues every month without being late.
Once you have incorporated it into your lifestyle, you can make bigger purchases. When you make bigger purchases, make sure that you also set aside some cash so you can pay for it when the statement comes.
You don’t need to wait until your bill arrives to pay for the amount you borrowed through your credit limit.
As soon as the payment is reflected on your card, you can immediately pay it.
Discipline is Key
A credit card will teach you a lot of things regarding your finances, but one very important lesson that it teaches you is self-discipline.
Your credit card should only be used for significant purchases and should not be treated as your extra wallet of cash. This is where many people go wrong.
Consider your credit card as an extension of your wallet, reserved for essential transactions or emergencies.
Remind yourself that you still have other bills to pay so you can stop yourself from purchasing any items that you don’t truly need that affect your credit utilization rate and credit limit.
Identify Your Spending Patterns and Learn from Them
Another great way to navigate credit card credit limits effectively is to monitor how you spend your credit.
If you have a mobile app that you can link to your card, you will notice that every transaction made on your card is reflected on the app.
Check the app and identify your spending pattern. Check which transactions take a toll on your credit utilization rate and your credit limit, then try to minimize such expenses.
It will give you more room for funds to spend during emergencies and fewer fees to pay as well.
Increasing Your Credit Limit
Now that you have developed the habit of spending your credit limit the way it should be, you might want to have it increased so that you can afford more opportunities in the future.
The most effective way to increase your credit limit is to wait for your issuer to raise it.
Many credit card issuers often automatically offer a higher credit limit based on your habits.
This is why it’s essential to build good habits first. You can also request a higher credit limit if you’ve managed your credit card responsibly.
Don’t Request for a Credit Increase Too Soon
When it comes to requesting an increase in your credit limit, try to wait at least 6 months of proper habit in taking care of your credit limit first.
Those who are consistent in paying their bills and maintaining their credit utilization ratio will be able to request an increase soon enough.
You can also wait for your bank to increase it automatically for you.
Declining a Credit Increase
As much as you may want to receive an automatic credit limit increase, other cardholders do not want to have theirs increased.
An increase means that you will need to adjust your credit utilization based on the amount of the increase.
Some individuals simply don’t want to have an increase in credit limit or don’t need it at the moment. If you don’t need the increase in credit limit, you can always decline it.
Some credit card issuers contact you first before they offer you a credit limit increase. Take this time to think about the effects of such an increase and decide.
Get More Out of Your Credit Card Credit Limits
Your credit card credit limits can also be the gateway for you to earn rewards from using your card.
Take note that the higher your credit limit, the more you can use the card for purchases and other transactions.
This means that you’re more likely to use a credit card that will let you earn more rewards.
You get more rewards points, cash back, or even travel miles, which means that you get to redeem them much faster and enjoy all of their benefits.
Conclusion
Navigating your credit card limits effectively involves a lot of nuance. It takes a lot of patience, time, and self-discipline to avoid indulging in your credit limit and spending way too much than what you can afford to pay. Make sure to follow the tips mentioned above so you can carefully manage your credit card finances.
