It is a common misconception among everyone that a high salary will get a high credit limit on your credit card. But there are a lot of people out there who have a very low credit limit on their credit card despite earning a pretty handsome figure. There is a reason as to why banks offers low credit limit on credit cards despite the high income of the cardholder. Banks set the credit limit based on a few important factors. We’ll delve more into the details of credit card limit in this article.
What is a credit limit?
Credit limit on a credit card refers to the maximum amount that a cardholder can borrow on their credit card. The credit limit on the credit card is set by the bank and is done at the time of sanction of the credit card. The credit limit is set based on several factors.
How is your credit limit decided?
The credit limit on a credit card is decided by the issuer of the credit card, be it a bank or a financial institution. The bank or financial institution sets the credit limit based on the credit score of the applicant. The applicant has to fill out a form providing income details, KYC documents at the time of applying for the credit card. The bank or financial institution checks the applicant’s CIBIL score to assess their credit history and credit behaviour. If the applicant’s CIBIL score meets the cut off criteria and if the credit card issuer is happy with the applicant’s credit history, they move on to deciding the applicant’s credit limit based on the information retrieved.
Even though CIBIL score is one of the main parameters in deciding the credit limit, there are a few other factors such as the income, payment history and number of accounts considered while deciding the credit limit on the credit card. But the deciding factor will be your credit score, so even if you earn a high income, a bad credit score might lead to lower credit limit on your credit card.
How to get a higher credit limit on your credit card
There are a few steps that one can follow in order to get a higher limit on their credit card. Listed below are the steps.
- Maintain a good credit score
- Do not default on payments on credit cards and loans
- Maintain a balance of secure and unsecure loans
- Do not apply for too many credit cards
- Choose a longer tenure
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