As soon as we millennials begin to gain financial independence, we are often bombarded with tons of financial advice from friends and family, right??
And one of the most common pieces of advice is to not use credit cards, isn't it??
Despite the plethora of benefits credit cards are loaded with, we are repeatedly made to feel dreadful about this payment mode. And the result? Not only do a lot of people hold back from taking a credit card, but even those who already have it, end up refraining from further boosting their credit limit due to the fear of overspending.
What all of such people, who believe in biased opinions or hearsays that drag credit cards into bad-light, fail to realize is that the issue lies in your usage and repayment behaviour towards this financial tool. Click here to know the common mistakes that credit card users make.
So if you too are amongst those millennials who hold a credit card but refrain from increasing your credit card limit, it's time to hit the refresh button in your mind and read these super benefits of accepting a higher?credit card limit.
Also Read:?Why Your Credit Score Can Fall Despite Timely Payments!
You might be wondering how a credit limit increase on your credit card can boost your credit score. Let¡¯s simplify this for you.?
One of the key factors that occupy a significant weightage in your credit score calculation and hence impacts it, is your credit utilization ratio?(CUR). It is the proportion of the total credit limit used by you.?For example, if your total credit limit is ?1.5 lakh and your current outstanding credit card balance is, say, ?60,000, then your CUR comes out to be 40%.
Now, since financial institutions generally tend to consider those who maintain a CUR of above 30% as credit-hungry borrowers, credit bureaus too follow the suit and pull down your credit score whenever you breach this mark.?
So, given that your credit limit is a key element in determining your CUR, having a higher credit limit would ultimately pull down your credit score, provided you do not spike up your credit card spending upon obtaining an enhanced credit limit. Subsequently, a reduced CUR will boost your credit score, which will improve your overall eligibility for loans and credit cards.
Also Read:?How Secured Credit Cards Can Help You Step Into The World Of Credit Score
Another key benefit of increasing your credit limit is that the enhanced?credit limit can act as a bigger cushion during financial exigencies, shortfalls or unexpected big-ticket expenses which you will be able to route?through your credit card, without immediately compromising on your liquidity present in the form of bank balance or investments.?
After utilizing your bigger credit limit for dealing with such circumstances, you can conveniently repay the outstanding amount by the due date, which is usually around 18-55 days from the transaction date, or you even convert that big-ticket amount into EMIs, if need be, instead of having to incur the hefty finance charges of around 40% p.a. on the unpaid dues.?
Also, when dealing with financial exigency, you can withdraw cash from your credit card too, if needed. But use this facility only if it's the last resort and try to repay the withdrawn amount at the soonest, as the twin charges in the form of cash withdrawal fee and finance charges are levied on such transactions.??
Also Read:?Does It Make Sense To Maintain Emergency Fund If You Have A Big Bank Balance And Investments
The features of credit card EMIs have been increasingly becoming popular amongst users and merchants.?
Whenever you wish to make a relatively big-ticket purchase like TV, iPhone, expensive watch, etc. there are various merchants who already have tie-ups with credit card issuers to offer EMI facilities at lower interest costs or even as no-cost EMIs.
And that¡¯s not all. Instead of directly purchasing the goods at EMI instantly, you can even convert a big purchase later into EMI, by opting for that option in the credit card issuer¡¯s app or website or contacting them regarding the same.?
At an overall level, the idea of owning something on EMI, which you otherwise could not have purchased through lump sum payment is what pushes many credit card users towards the EMI facility. Since your credit card purchase would anyway be made against the limit itself, having a higher credit limit can help you make bigger transactions, if needed. Moreover, a bigger credit limit would also help in keeping your CUR lower.
To make it simpler, let's take this example. If your current credit limit is ?60,000 and you wish to purchase a mobile phone of ?30,000. Your CUR would calculate out to be 50%, which is much higher than the 30% mark beyond which credit bureaus tend to pull down your credit score.
In such a case, if you had a higher credit limit, then your CUR can remain lower and hence, prevent your credit score from taking a hit too. Like if you had a credit limit of say, ?1 lakh, your CUR, in this case, would be 30%, which is much lower.
Hence, it's better to have a higher credit limit if your card issuer has offered the same to you, or you can check your eligibility by logging in to the card issuer¡¯s app or net banking, and request for the credit limit increase if eligible.
Also Read:?Stop These 5 Everyday Money Habits That Are Harming Your Credit Score
The loan against credit card feature is not known to many users. For the uninitiated, these are pre-approved loans usually offered by the credit card issuers to select customers as per their bill repayment history, spending pattern etc.?
And since this loan is?sanctioned against the credit card user¡¯s credit limit, which gets blocked by that amount, having a higher credit limit allows?you to?avail?a bigger?loan amount whenever the need arises. The pre-approved nature of these loans usually negates the need for documentation, hence the disbursal is amongst the quickest ones. Also, remember that your blocked credit limit keeps getting freed as and when you keep repaying the credit card loan¡¯s EMIs, with tenures generally going up to 5 years.
Moreover, some credit card issuers even offer a variant of credit card loan, wherein the loan amount is over and above the credit limit, hence the limit does not get blocked upon availing this loan.
Also Read:?5 Super Financial Resolutions For New Year 2022
Click here to download CRED and unlock a plethora of exclusive offers, rewards, cashbacks etc on making credit card payments, besides getting payment reminders, credit score check, detect hidden fees or charges and participate in fun games that fetch you chances to win exciting gifts!?
And don't forget to refer CRED to your friends and family!
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