A credit limit is a defined amount that a bank may lend you when needed. In this article, we explain how to use this financial tool properly to avoid falling into the trap of high interest rates.

How Do Credit Limits Work?

Imagine you have a credit card with a limit of, say, 20,000 UAH. You can freely spend money within that limit, but it needs to be paid back eventually. If you don't repay on time, interest will be charged, and your debt will grow. There are various types of limits:

▪️ Credit Cards: A fixed limit is set on the card, and you can spend up to that amount.

▪️ Overdraft: The bank allows you to spend more than you have in your account, with the condition that you must repay the money with interest.

▪️ Personal Loans: You receive a fixed sum, which you then repay in installments over a set period.

How to Use a Credit Limit Correctly?

Develop the habit of managing your finances, and everything will fall into place:

Plan your expenses in advance. If you decide to use your credit limit, immediately determine when and how you will repay the debt.

Repay on time. Use any interest-free period, if available.

Monitor your debt amount. Exceeding your limit may result in penalties and extra costs.

Don't overspend on immediate pleasures. Use your limit only when absolutely necessary.

How to Increase Your Limit?

If you're running low on available funds and want to increase your limit, most banks will raise it if you consistently repay your debts on time. The more you keep your debt low, the higher the chances that the bank will accommodate your request. However, an increased limit doesn't mean broader spending options. It's simply more money that you need to repay on time.

Advantages and Disadvantages of Credit Limits

Credit limits have both pros and cons. They provide flexibility and quick access to money, which is useful when you need to spend more than you have in your account and don't want to take out a new loan. Timely repayment can even improve your credit history.

On the other hand, if you fail to repay on time, your debt can spiral out of control. Exceeding the limit can also lead to penalties. Therefore, it's crucial to be mindful, control your spending, and repay borrowed money on time.

Conclusion

Credit limits require responsible management. They offer convenience by providing access to funds when needed, but it’s important not to spend more than you can repay. With careful control of expenses, your limit can become an effective tool for improving your credit reputation.