Credit Card: How do banks determine your credit limit? If you understand this, increasing your credit limit will be a piece of cake..

Today, a credit card is not just a plastic card, but a crucial tool for your financial freedom. Whether it's online shopping, emergency expenses, or travel bookings, a credit card comes in handy everywhere. But a question often arises: why do some people have credit card limits in the millions, while others are limited to just a few thousand?

The answer lies in your financial profile. Banks thoroughly assess your entire financial profile before determining your credit limit. If you understand this process, increasing your limit will become a breeze.

How is a Credit Card Limit Determined?

Before lending you money, banks carefully calculate the risk involved. They use several key factors as a basis:

1. Your Income
The bank first looks at your monthly income. The higher your salary or business income, the lower the risk for the bank, and the higher the credit limit offered. Those with lower incomes receive lower limits because the bank perceives a higher risk of default.

2. Credit Score
Your credit score is your financial report card. If you have paid your previous loans and credit card bills on time, your score will likely be 750 or higher. A high credit score is a green light for the bank, and this directly translates into a higher credit limit for you.

3. Existing Loans and EMIs
If a large portion of your income is already going towards existing EMIs, the bank becomes cautious.

More loans = more risk.

In such cases, the bank avoids offering new or higher limits.

Want to Increase Your Credit Card Limit? Follow These 4 Smart Tips
If your current limit is low and you want to increase it, these tips can be very helpful.

1. Update Your Salary Slip or Income Documents
If your salary has recently increased, be sure to provide the bank with your new salary slip or income tax return. Often, banks themselves offer to increase your limit once your income increases.

2. Pay Bills on Time
This is the easiest and most effective method. If you consistently pay your credit card bills before the due date for 6 to 12 months, the bank starts considering you a trustworthy customer.

3. Keep your Credit Utilization Ratio under control
Let's say your credit limit is ₹1 lakh. Spending the entire ₹1 lakh every month is not advisable. Try to use only 30-40% of your limit. This gives the bank the impression that you are using your credit responsibly.

4. Request an increase from the bank yourself
You can request a limit increase through the bank's customer care, mobile app, or internet banking. If your record is clean, the limit is often increased immediately in many cases.

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