For those of you who may not be familiar, a credit limit is basically a maximum spending capacity your bank sets on your credit card. This can be found in your card agreement and is usually on a per month basis. For instance, if your credit limit is S$10,000 per month, it means that if your expenses go above this value, these purchases will be denied and your credit score might fall.
You might be wondering: why do banks care when I’m not technically defaulting my loans and I pay back all the money on time? Think about it this way. Would you lend money to a friend who is known to owe S$10,000 to another person? The best practice is to ensure that your spending does not go above 30% of your credit limit for each card. Once you hit the 50% mark, you’re in the danger zone. Banks may consider you a flight risk and this will cause your credit score to take a hit. This will in turn, play a role in the rejection of your credit card application.: Before applying for a new credit card, take a few months to adjust your spending habits and rack up a good credit score. Stick to the 30% rule and you should be fine.
In a way, credit cards are like mini-loans, you make purchases using the bank’s money first before paying it back. Having existing debt is bound to make banks slightly hesitant to lend you more money. Same idea as before: would you lend money to a friend who doesn’t have enough to pay off their house and car?
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