What is credit limit? How does it work?

What is credit limit? How does it work?

Credit Limit

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.

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.

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.


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. 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.

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