The credit card limit is one of the best facilities with which we can tell today. In addition to the benefit of not having to have cash in your wallet all the time, you can anticipate purchases, pay for contingencies, installment purchases and can also better control your spending by tracking your invoice statement.

It is common to see people who simply do not understand how the limit works and end up in debt for sheer lack of knowledge. That’s why we’ve come up with a very simple and easy-to-understand explanation to help you understand everything right, so you can enjoy all the benefits that a credit card offers without getting in the way of your budget.

Understand the Credit Card Limit

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It is common for the card to come with a high credit limit as this aims to increase your purchasing power.

However, it needs to be used with caution so that you are not tempted to buy just because there is a limit available, forgetting the total invoice amount at the end of the month.

As the card is used and the invoice paid, the amount paid back to the total available limit, and the perfect scenario is to always pay the full amount used and therefore always have available limit.

How the Credit Card Limit is Set

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The credit card company does research to find out your income, employment, and especially your track record as a consumer and payer; which will generate the famous “Score” (based on some statistical calculations, there is a score obtained called a score, and this score will tell you how likely you are to be a delinquent customer).

With this result, your card will be approved or not and the limit set. This limit cannot be exceeded while using the card (and if you use the full amount of the limit, the card will be declined on retry attempts). But regardless of the limit, it is important to keep in mind that only a portion of your income can be committed to credit card spending, so you don’t spend more than you can afford, and fatally get into the famous (and terrible!) revolving credit.

What is revolving credit?

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When you are unable to pay the full amount on your invoice, and you pay only the minimum (which corresponds to 15% of the total invoice amount) or an intermediate amount between the total and the minimum, you will pay revolving interest on your next invoice. . That is, interest will be charged on the amount you have not paid.

Until April of this year, if for the second month in a row you did not pay the full amount of the invoice, more interest would be charged, including on top of the interest that was already charged the previous month, and so every month until you paid the invoice.

In short, you would pay interest on interest, and over time, the total amount of your invoice would eventually become much larger than the value of the purchases you actually made.

But a new Central Bank ruling came into force in April, and now the payment of the minimum invoice amount or intermediate amount can only be paid once. In the following month, the total amount of the invoice must be paid or paid in installments. That is, the credit card company will no longer be able to “rotate” the debt, thus reducing the potential debt of its customers.