Credit cards are a good way to build your credit score standing. Banks and other lending institutions use credit scores to assess and evaluate the potential risk of lending you some money. That’s why it is important that you use your credit card wisely. The only way to achieve this is by understanding your credit card statement and how it works. In this second part of the series, let’s focus on the credit limit. Below is a list of additional terms and description in understanding your credit card statement part 2.
Understanding Your Credit Card Statement Part 2
Credit card issuers put credit limits on your credit card for a good reason. The limits are there to benefit both you and the credit card issuer. The amount is based on a computation that it is easy for both parties to manage the credit. Your limits are normally based on your capacity to pay. Being consciously aware of these limits will help you be able to utilize your credit card well.
5. Credit Limit
Your credit limit is the maximum amount that you can borrow on your credit card every cycle. The amount is decided by the credit card issuer based on certain factors such as your monthly income, credit score and account history.
TIP: Keep your credit limit in check. Going over your credit limit will result to hefty penalties and affect your credit rating.
6. Overlimit Amount
Any amount in excess of your credit limit is the overlimit amount. The overlimit amount is subject to penalties. It is also added up to your minimum amount due.
TIP: Avoid the embarrassment of an unapproved or declined transactions by making purchases above your credit limit. In addition, do bear in mind that there are penalties when you go above your credit limit. And besides, going above your credit limit means your credit card usage is already more than your capacity to pay.
7. Available Credit Limit
This is the amount available for you to spend. It is actually your credit limit minus your total amount due less any other pending transactions.
TIP: It is advisable to always have an available credit in your credit card for emergency purposes. In addition, having a lot of available credit limit at any given time is good for your credit score.
8. Cash Advance Limit
The cash advance limit is the maximum amount that you are allowed to withdraw in cash. Some credit cards have the same credit limit and cash advance limit while others set a separate amount for cash advance.
TIP: Never use the cash advance feature of credit card unless you really need to or there is urgency in the situation. Although it is a convenient way to get cash fast, the interest rate for cash advance is much higher compared to personal loans.
First Published in Pinoy Smart Living on 28.06.2019