Top News

Credit Card Tips: Banks often grant credit card limits that exceed your salary. Let’s explore the reasons behind this and the factors banks consider when determining these limits.

Credit Card Limit: Nowadays, credit cards are not merely a payment tool; they have become an integral part of people's lifestyles. People frequently use them for various needs such as online shopping, travel, movie tickets, EMI purchases, and availing cashback offers. Consequently, a common question arises: why do banks offer a credit limit higher than a person's salary (e.g., ₹50,000 or ₹60,000)?

In reality, banks look beyond just your income; they also evaluate your credit score and payment history. However, having a high credit limit does not mean you should spend the entire amount.

Why is the credit limit higher than the salary?

Banks assess your credit score and payment history alongside your salary. A strong credit record increases the likelihood of receiving a higher limit. A major benefit for the bank is that the more you spend using the card, the higher the commission they earn from merchants. Furthermore, if you do not pay the full bill, the bank earns revenue through interest charges and late fees.

How much should you spend using a credit card?

It is generally recommended to limit credit card spending to 30% of your take-home salary. For instance, if your salary is ₹45,000, try not to spend more than ₹13,500 on the card. Excessive utilization of your credit limit can negatively impact your credit score.

Is it advisable to hold more than one credit card?

There is nothing wrong with holding multiple cards if your needs require it.
However, it is crucial to make timely payments for all cards.
Use auto-pay or set reminders to ensure no payments are missed. Avoid using a credit card for every small purchase unless necessary.