Why A High Credit Limit On Your Credit Card May Be A Good Idea

When you hear about credit cards, the first impression you get is that they are evil and potential debt traps. The general consensus is therefore that you should take a credit card with a lower limit so that you can keep yourself away from spending more. But this is not always true. If you are a judicious credit card user, you can make a higher credit card limit to your advantage. Here's how. Translates into a higher CIBIL score When you have a higher credit limit and are using only a small portion of it, it is likely that your credit utilisation or the total amount of credit you are using as against the total amount made available to you remains under 30 per cent. Since credit utilization accounts for 30 per cent of the scoring algorithm at CIBIL, you are safe on that count. But the caution here is to resist the temptation of spending more just because you have a higher limit on your card. Easier credit Since a credit card issuer has already issued you a card with a high credit limit, it becomes easier for you to take another card if you so wish. This is of course subject to a good CIBIL score. You must however keep the credit card utilisation low in the range of 30-40 per cent and make timely repayments on your credit card at all times. Good usage of credit and a high CIBIL score will give new lenders the confidence to give you fresh credit, if you are in need of it. Increased rewards potential Credit cards come with a host of reward points and cash-backs that you can use to your advantage in addition to spending on your credit card. These are typically opportunities that a debit card will not provide. If you carry out enough research before you opt for a credit card, you will find many cards that seem to be tailor-made to your needs. For instance, frequent travellers can rake up air miles and avid shoppers on credit cards can make the most of cash-back offers. Credit cards with higher credit limits come with some benefits of their own, but make sure you carry out the necessary research instead of lapping up the first offer in credit cards that comes your way. Can help you in emergency situations Financial prudence advocates that you should always maintain an emergency fund that can take care of all you set monthly expenses for at least a period of 3-6 months. But sometimes even this kind of emergency fund may fall short. At such times if you are in need of money, your credit card can come to your aid. However, do bear in mind that the higher limit is not be utilised unless and until it's a desperate and distressing situation you find yourself in. A credit card is a good way to build your CIBIL score and maintain it at the level of 750 and above, provided you are using it judiciously. If you keep a vigil on your credit card spend and are cautious about its usage you will end up with a good CIBIL score. On the other hand, if you are reckless with it you may end up in a debt trap that will be difficult to get out of. Disclaimer: All information in this article has been provided by Creditvidya.com and NDTV Profit is not responsible for the accuracy and completeness of the same.

Why A High Credit Limit On Your Credit Card May Be A Good Idea

One should resist urge of spending more from a high limit credit card Using small portion of such credit card means less credit utilization Credit utilization accounts for 30% of scoring algorithm at CIBIL

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