What is the Credit Limit? How does it work?

Having a credit limit is like having a friend who you can always depend on, but for money…

Need money for a medical emergency? It’s there for you!
Out of cash but want to go on that trip? It’s there for you!
Want to enroll in that upskilling course? It’s there for you!

With your credit limit you would be able to have what you need, want or desire, now. Because life’s too short to wait. Here’s more about what it is & how it works.

What is Credit Limit?

Credit Limit is the amount of money that a credit provider is willing to offer you either through a credit card, credit line, or loan for your personal use. It is the maximum amount that you can borrow from the lender.
Your credit limit plays a very important role when it comes to your finances.

Based on how much percentage of the limit you use, it can increase or decrease your credit score. It is recommended to keep your credit card utilization around 30% of your total limit. Your credit limit also affects your chances of approval for further credit products. Lenders perceive individuals with high credit limits as more trustworthy borrowers.

Your credit limit can be of immense help in covering emergency expenses like medical bills or car repairs. You can take a personal loan and split the repayment amount in convenient EMIs.

Based on the information and documents provided by the borrower, credit providers determine the credit limit amount. If you want to increase your credit limit, you should make timely repayment of your EMI amount.

You can get your credit limit offer up to ₹5,00,000 on the Zype app by entering your basic details like name, PAN, mobile number and employment details. Once you have entered this information, your credit limit offer is generated in less than 60 seconds. You can take multiple loans simultaneously from your credit line and repay with flexible EMI options.

Read More: Personal Loan EMI Calculator

How Does Credit Limit Work?

Once you apply for a credit limit, the credit provider assesses your profile & based factors such as credit score, your repayment history and income they offer you an appropriate amount to spend.

Every time you spend money from your credit line, the amount is deducted from your credit limit.

Think of it this way, you have a credit limit of Rs 80,000 & you spend Rs 24,000 for medical reasons.

You would now be left with a credit limit of Rs. 56,000. This would mean that you have utilized 30% of the total limit. This is called credit utilization percentage.

Also Read: Medical Emergency Loan

What is Credit Utilization Percentage?

Credit utilization percentage is the amount of credit you are currently using compared to the total amount of credit you have available.

While it is always tempting to use your credit limit completely, it is a good practice to utilize only 25-30% of your total limit with one lender to maintain a healthy credit profile. Once your limit utilization exceeds 50% it could negatively impact your credit score.

But there is nothing to worry about because all you have to do is keep a consistent check on the amount of pending credit through your statements.

Factors that Affect the Credit Offer You Get

A credit provider will look at the following factors to determine your credit limit:

    • Income
    • Existing loans & credit cards
    • Repayment history
    • Credit score
    • Credit utilization

It is always wise to make loan & credit card repayments on time in order to improve your credit score & increase your chances of getting a higher credit limit in the future.

Conclusion

Be it a limited time deal or a family emergency, a credit limit will help you out whenever you need cash immediately.

You can get instant access to a credit line with Zype. Apply for a credit line in 3 easy steps & get approved for a limit up to ₹5,00,000 Personal Loan . Take unlimited loans from one credit line. Just select the amount you need, a convenient EMI option for repayment and transfer the money to your bank account in a single click.

Frequently Asked Question

What Is The Meaning Of Credit Limit?

A credit limit is the maximum amount of credit offered by banks and NBFCs on loan products like a credit card or line of credit. The credit limit amount is determined by factors like the borrower’s credit score, repayment history, income, maximum amount offered by the lender, etc.

What Is The Credit Limit Per Month?

The term “credit limit per month” means the maximum amount of debt you can borrow from a line of credit or a credit card in one month. This limit is evaluated by credit providers which can increase if you pay your EMIs on time.

What Is The Credit Card Limit For A 50000 Salary?

Salary plays a big role in determining your credit card limit. Your credit limit can be two or three times your current salary. With a ₹50,000 salary, you can get a limit up to ₹1.5 lakh. Your credit card limit is also based on other factors like your repayment history and your credit score.

How Do I Know My Credit Limit?

To know your limit for a line of credit or credit card, you need to complete the credit provider’s application process. You can read more about this on the lender’s website. You can get your Zype credit limit in less than 8 minutes by entering a few basic details like PAN and mobile number.