Financial flexibility can be increased by using your credit card limit well. We show you how to make the most of your credit card limits and how to increase them.
A credit card limit offers financial flexibility, but many people don’t know exactly how to make the most of it or how to increase their limit. What advantages a credit card limit offers, what steps are necessary to increase the limit, and what mistakes should be avoided – we’ve looked into this and give you a few tips.
Credit card limit briefly explained
Classic credit cards usually come with a so-called credit limit. This limit ensures that users can take out a mini loan from their financial institution when the actual balance of the current account is exhausted. The word credit card limit already contains the whole point: Overdrawing your own balance is always limited. This offers security for both the bank and the user, for example if the card is stolen. It is also impossible for the credit card user to become over-indebted. The set credit card limit can be found on the statement or in the customer account.
American Express generally offers its customers a fairly high credit limit, especially with its premium cards such as the Amex Gold or Platinum – which increases financial flexibility. But there is no standard here either; the limit is set depending on the applicant’s financial situation. Depending on your credit rating, for example, you can have 10,000 euros or more available for the Amex Platinum Card when you apply.
Calculating the credit card limit
The credit limit for credit cards usually depends on both the provider and the income of the user. According to information provided by the common credit card companies and banks such as American Express, Barclays or TF Bank, these factors play a role in the calculation:
- Amount of income or the amount that is paid into the account each month
- Verification of the user’s creditworthiness and previous payment behaviour through a credit check
- Credit card type – Premium credit cards with a high annual fee often have a higher credit limit
- Customer loyalty can also play a role – those who have been customers of the bank for a long time and have always paid all their bills reliably have a better chance of increasing their credit card limit
Benefits of credit card limits
According to the experts from Börsenradio, a credit card limit can have advantages. For example, it offers additional financial flexibility in everyday life. The credit limit gives users the opportunity to access it in emergencies or for larger purchases without having to resort to savings. In addition, credit card companies often offer flexible repayment options. The set limit also ensures that users do not accidentally get into debt.
Barclays also uses a scoring system to check the user’s creditworthiness. The credit card limit is then set when the credit card account is opened. After six months, an increase in the credit limit can be requested.
Increase in credit card limit
To protect yourself from over-indebtedness and to minimize the risk of card theft, the credit limit should not be too high and should only cover your actual financial needs. However, if you want to increase the current limit, you can do so under certain circumstances in consultation with your bank. Here are the most important measures users can take:
- Regular and timely payments: Prove your creditworthiness by always making payments on time.
- Low credit utilization: Do not constantly use the entire available limit.
- Demonstrate financial stability: A secure income and stable financial circumstances can help.
- Use of the credit card and credit limit over a long period of time: Long-term responsible use of the credit card has a positive effect on a possible increase in the limit.
Common mistakes – and how to avoid them
One mistake that can happen but should be avoided at all costs is getting into debt when using the credit card limit. It can be tempting to completely exhaust the available limit, but this can lead to high interest rates and a negative credit score. Another common pitfall is misunderstanding the billing periods, which can result in late payments. To avoid these problems, users should:
- Keep an eye on your expenses and only use the limit for emergencies or planned expenses.
- Check statements regularly and ensure that all payments are made on time.
- Create a budget to control expenses and avoid over-indebtedness.
Credit as an alternative to credit cards with credit limit
In order to avoid a possible debt trap caused by the credit function of a credit card, an installment loan can also be used. This can be particularly useful for larger expenses, as lower interest rates often have to be paid on an installment loan. However, interested parties should definitely make a comprehensive comparison of possible installment loans in advance in order to then filter out the actually cheapest one.
A so-called line of credit could also be an option. Here, the bank provides a cash reserve that can be accessed at any time up to the agreed limit. Interest is only paid on the amount paid out, and unlike with an installment loan, repayment is flexible. According to the Finanztip portal, the interest is lower than with an overdraft, but higher than with an installment loan.
Whether it’s a credit card limit or a loan, the various options provide financial flexibility for the user. However, it’s important to proceed responsibly and in a planned manner in order to avoid falling into a debt trap.
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Source: Stern
