If you have ever used a credit card, you probably know that you have a credit limit. But what is it exactly? A credit limit is the maximum amount you can spend on a credit card. Knowing your maximum, however, does not mean it’s a good idea to reach it. In fact, learning how to manage your limit responsibly now will likely improve how much you can borrow down the road.
Why does a credit limit matter?
Your credit score is heavily influenced by how much of your total credit you use, so all the balances and limits on your card are taken into account. The ability to get financing on things like a home or car can be impacted by your credit score.
What if you exceed your credit limit?
A credit card balance that is too high can have a number of negative consequences. If you regularly go over your credit limit, your bank may assess overcharge fees, decrease your credit limit or even close your account. Banks may also increase your interest rate if your credit history shows that you regularly exceed your credit limit, and your credit score may be negatively affected. So make sure you know what your limit is and always keep track of how much you’ve charged.
How do banks determine my credit limit?
The first thing banks look at when you apply for a credit card is your income. Banks usually grant a credit limit of two to four times your monthly salary. However, the amount can vary from bank to bank. Your credit limit is also determined by your credit score from Credit Bureau Singapore. If you have a good credit score, you are more likely to receive the maximum credit limit when your credit card application is approved. So, it's best to have as few outstanding loans as possible when you apply for a credit card.
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