Credit cards offer pre-approved and short-term loans, which are ideal for meeting your daily financial requirements. However, there is an upper limit to the maximum amount that you can spend using a credit card. This upper limit is known as the credit limit. This limit is decided based on several factors. Hence you must know how to use a credit card optimally to increase your credit limits.
In addition to the credit limit, there is an upper limit of cash that you can withdraw through a credit card, and it is known as the cash limit. Both credit and cash limits are decided based on your credit score and how you use it. Let’s understand the factors that affect your cash limit below.
What is a credit and cash limit?
As mentioned already, credit card offers pre-approved loans instantly for a short tenure. The maximum amounts that you can use on a credit card are pre-decided based on various factors. This maximum amount is commonly known as the credit limit. You can also withdraw cash using your credit card. However, you cannot withdraw all your credit limit in cash, so the banks also set a cash limit.
For example, if you hold a credit card with a credit limit of ₹1.5 lakhs and a cash limit of ₹50k. You can only withdraw up to ₹50 k using your credit card. Once you have withdrawn this amount, your credit limit will reduce to ₹1 lakh. However, you can consume your full credit limits for online expenses.
Several banks offer credit cards with certain credit limits depending on your credit score and a few other factors. But if you are looking for a credit card with a higher credit limit, you can apply for an IDFC FIRST Bank credit card. The bank not only offers credit cards free for lifetime but also a range of shopping, lifestyle, and entertainment benefits. You also get several travel benefits cards, such as credit cards with lounge access and up to 10X rewards on every expense.
Factors that affect the credit and cash limit of your credit card
Before acquiring a card, you must know a few technicalities and how to use credit cards efficiently to build a good credit history. A decent credit score can help increase your credit and cash limits. Here are a few factors that determine your credit and cash limit.
- Creditworthiness
Banks decide your creditworthiness through credit score. With a good score, you can have bigger credit and cash limits and a lower financial charge.
- Income and expense
The banks consider your income and expense while deciding the cash and credit limits. If you know how to use a credit card efficiently, you can reduce your expenses and increase your credit limits.
- Payment history
The banks also consider how consistently and timely you pay your bills. Timely bill payments help increase your credit and cash limits.
- Credit Utilisation
Consuming your full credit limit is considered risky. Hence, it is advised you keep your credit utilization to less than 30% of your credit limit to get higher credit and cash limits. Banks consider your credit utilization by accounting for how much you consume from your current credit limit. Low credit utilization can ensure higher credit limits.
By knowing how to use a credit card, you can ensure high credit and cash limits and also reduce the unnecessary financial burdens off your shoulders. You can apply for a credit card free for a lifetime if you are a first-time applicant since it is more affordable and convenient to manage.
