collaborative post | A credit card may be worth signing up for due to its convenience, financial flexibility, and even the rewards that come with it, as long as it’s used responsibly. It’s typically when credit cards are misused that borrowers experience accumulating debt and financial strain due to overspending or neglected payments.
It can be tempting to spend beyond one’s means due to the convenience that credit cards offer, but without careful budgeting, the balance can grow rapidly. Interest charges will start to accrue on unpaid balances, which will increase the amount owed each month. If you want to avoid this kind of financial stress, you need to understand how credit cards work—particularly when it comes to staying within your credit limit. This is the kind of discipline you’ll need for your very first credit card and any succeeding cards you’ll sign up for, like the Landers Cashback Everywhere Credit Card by Maya.
In a nutshell, credit card limits determine the amount you can spend. You’ll typically find information about your credit card limits in the terms and conditions along with your new credit card. This standard procedure applies to many types of credit cards, including when your Maya credit card application gets approved. If taken into account and managed well, your credit card limit can help you avoid debt, improve your credit score, and enjoy the perks your card offers.
To make the most of your card without falling into financial trouble, here’s everything you need to know about credit card limits.
What Are Credit Card Limits?
At its core, a credit card limit refers to the maximum amount you can spend using your credit card. If your credit limit is PHP 50,000, for example, you can make purchases or payments using the card up to that amount. Once you reach this limit, you will not be able to make any further purchases until you pay down some of your balance.
How Do Credit Card Limits Work?
Every time you make a purchase using your credit card, the amount you spend is deducted from your total available credit. Given the previous example, if your limit is PHP 50,000 and you spend PHP 15,000, your available credit becomes PHP 35,000. As you pay off your balance, the available credit is replenished. While this may be the case, take note that you don’t need to spend your entire credit limit.
Some issuers may allow transactions beyond your credit limit, but this often comes with over-limit fees. Moreover, consistently maxing out your credit card can harm your credit score, as it increases your credit utilization ratio or the percentage of your available credit that you’re currently using. Keeping this percentage low signals to lenders that you’re managing your finances responsibly; the converse is also true, where a high percentage communicates that you are a risky borrower. If you want to avoid penalties and maintain a good credit standing, it’s best to stay well within your credit limit and pay off your balance regularly.
How Are Credit Card Limits Determined?
In the Philippines, banks and credit card issuers take multiple factors into account when determining your credit card limit. One of the most important considerations is your income. The higher your income, the more likely you are to be granted a higher credit limit, as it indicates your ability to pay off large balances. For first-time applicants, providing proof of income through payslips or tax returns is often required during the application process.
Another significant factor in determining your credit card limit is your credit score. This reflects your creditworthiness based on your past financial behavior. If you have a history of paying loans or other bills on time, you’ll likely have a better credit score, which results in a higher credit limit. First-time applicants with no credit history may be assigned a lower limit initially, but this can increase it over time with responsible card usage.
In addition, your employment status and existing debt play a role in determining your credit limit. Stable employment reassures lenders of your ability to make consistent payments, while a low debt-to-income ratio increases your chances of receiving a higher limit.
You Can Eventually Increase Your Credit Card Limit
After using a credit card for some time, you may want to increase your credit limit to accommodate larger purchases or improve your credit utilization ratio. Typically, issuers allow you to request a limit increase after six months to a year of responsible credit usage. When making the request, you may need to provide updated financial information, such as proof of income.
You can also demonstrate responsible credit card usage by making timely payments. Cardholders who consistently pay their balance on time and in full are often seen as lower-risk borrowers by issuers. In addition to timely payments, you should also focus on not using up all your available credit to keep a low utilization ratio. Many financial experts suggest keeping your balance below 30% of your credit limit to show lenders that you’re using your credit conservatively and responsibly.
There Are Advantages and Disadvantages to Increasing Your Credit Limit
With an increase in your credit limit, you’ll get to enjoy greater financial flexibility. Whether it’s for an emergency expense, a planned large purchase, or a special occasion, having a higher credit limit gives you more options without needing to rely on other forms of credit.
But while increasing your credit limit can be beneficial to you, especially in the short term, it also comes with risks, especially for those who struggle with overspending. A higher credit limit may tempt you to make larger purchases or accumulate unnecessary debt. If you are not careful, this could lead to more significant financial burdens in the long run, particularly if you cannot pay off your balance on time.
That said, it’s important to weigh the pros and cons of increasing your limit and make sure your limit aligns with your financial goals.
If you’re a first-time credit card applicant, it’s important for you to learn everything you can about your credit card limits. If you have a solid grasp of the fundamentals discussed in this article, you’ll be able to avoid potentially devastating financial pitfalls and build both positive spending habits and a strong credit history that will serve you well in the future.
