BusinessFinanceWhat's a Credit Card Limit and How Do Issuers Calculate Limits?

What’s a Credit Card Limit and How Do Issuers Calculate Limits?

Credit card limit refers to the maximum amount of money a credit card issuer allows a cardholder to spend using their credit card. Factors like the cardholder’s creditworthiness, income, and much more determine the limit. The credit card limit is not a target to reach but rather a spending cap. Going over the limit can result in fees, penalties, and damage to the cardholder’s credit score. Understanding one’s credit limit and managing to spend within it is important for responsible credit card use.

Let us explore the same in detail below. 

What is a credit card limit?

Simply put, a credit card limit is the total purchasing power you can utilise with your credit card. This is the maximum balance assigned to your credit card by your issuer. In other words, the total amount the NBFC offers can be used through your credit card. 

You must understand that how little or how much you spend determines the credit risk you pose to credit card issuers. Financial analysts advise that it is always best to utilise about 30% of your credit limit – meaning that it is not advisable to max out your credit limit. 

How do credit card companies calculate your limits?

Credit card companies consider several factors before assigning credit limits on your card. Some of these factors are based on company policies and others depend on the applicant. 

  • Issuer’s policies on credit limits

Some credit card issuers have policies regarding limits placed on cards – and these limits are predetermined and have little to do with the applicant. Such issuers may have a starter credit card with a maximum limit of Rs. 50,000 – so all new applicants will be issued this type of card – subject to other considerations.

The issuers may also have a premium credit card with a higher limit or more given to first applicants because they pose very minimal credit risks. This means the issuer determines who to give high credit limits based on applicants’ factors. However, card applicants or users can always request higher limits if they can justify their reasons.

  • Applicant’s income

Your income plays a role in determining the credit limit placed on your credit card – but it is considered alongside other important metrics. Although earning a higher income guarantees your ability to clear credit card balances (if you want to), it does not guarantee to have higher credit limits. But then, proof of income is an important requirement for obtaining credit cards, regardless of the limits assigned to the card.

  • Debt-to-income ratio

You may earn a high income and still max out your credit card by purchasing expensive assets. If you always overspend your credit limit, your credit card issuer will review and possibly reduce your limits. If you tend to reach your credit card limit or exceed it, you will be considered a risk. If you also do not always clear your balances or pay the minimum balance required, you have a high debt-to-income ratio and will affect your credit card limits.

  • Credit history and credit score

Having a healthy credit score increases your chances of having a high limit. Your credit score speaks of your creditworthiness. A higher score assures the issuer that you will repay your credit card bills on time and have a low credit utilisation ratio. A credit score above 740 is a good one for you to have a higher credit limit. 

  • Limits on other credit cards

As can be expected, your credit card company will review your financial prudence on other cards you operate and rate you accordingly. If you owe debt on other credit cards you have or have a poor repayment habit, your credit card issuer will adjudge you a high credit risk and reduce your limits. 

Can you request higher credit card limits?

Yes, you can ask your credit card company for higher credit limits. But you must understand that they reserve the right to disregard the same. Before you request to have your limit upgraded, ensure you have a high credit score and you can justify the reasons for your request. However, issuers frequently review your rating and increase or decrease your credit card limits without any input from you. 

All factors must be stacked in your favour before you request a credit card limit increase. You can check your credit card limit via your credit card app, online, and on your credit card statement. But all things considered, your credit card company will always take the initiative to increase or decrease your credit card limit based on your financial situation.


In conclusion, the credit card limit is important for responsible credit card use. It represents the maximum amount of money a cardholder can spend using their credit card, and going over the limit can result in fees and penalties. Understanding one’s credit limit and spending within it is crucial for maintaining a good credit score and avoiding financial troubles. By using credit responsibly and staying within the limit, cardholders can reap the benefits of credit cards, such as convenience, rewards, and improved creditworthiness.

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