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Have you noticed a recent decrease in your credit limit, and you’re wondering why? This could happen because of multiple reasons. Perhaps you have not used your credit card in a long time or maybe your spending habits have changed.
You can do various things like building your credit limit back up or lowering your expenses to increase your credit limit back to as it was. This can also help you improve other factors like your credit score and credit reports that affect your credit card limit.
Let us find out all possible reasons that can get your credit limit slashed substantially. Also, we will take you through things that you can do to get your credit card limit back up.
Your credit card limit is highly affected by your credit score and credit reports. There are three consumer credit bureaus named Experian, TransUnion and Equifax in the UAE that have records of individuals’ credit reports and credit scores.
The lender checks at least one of your credit reports before they set your credit card limit. These factors help them determine your creditworthiness. They reflect the amount you owe to the lenders and how frequently you pay your debts. These reports indicate how you handle your finances and deal with your borrowings. The lenders also consider your payment history and ongoing loans.
Even if, after checking all these reports, the credit card owner sets up a credit limit, they can decrease it anytime without giving any warning. The card owner does not apply any late payment or over-limit usage charges until 45 days after you have been informed about the decrease in limit.
Here are the major reasons why your credit limit might get decreased.
Here is what you can do to check why your credit card limit was decreased.
A decrease in the credit card limit can end up affecting your credit score as the credit score calculation majorly depends on your credit utilisation ratio. The credit utilisation ratio gets calculated based on your credit limit, your credit card balances, etc.
For example, if your credit card limit is AED 10,000 and the balances on your credit cards add up to AED 2,000, your credit utilisation ratio would be 20%.
And if your credit card gets discontinued or the card owner closes or decreases its limit, the whole credit limit declines.
For example, one of your credit cards with a credit limit of AED 2000 gets cancelled. Now, the total credit limit will be AED 8,000. However, the balances that add up are the same as AED 5,000. So the credit utilisation ratio increases to 25%. If the credit utilisation goes above 30%, your credit score gets impacted negatively.
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Here is how you can minimise the impact of a decreased credit limit.
Here are the simple steps to apply for a credit card in the UAE.
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The Bottom Line
You might not control the fact that your credit card limit has been reduced, but you can learn from your mistakes. Go through all your reports and take the right steps to make things fixed. Make sure you make no errors and take essential steps to get your credit limit increased.
Keeping up the good financial habits such as clearing the outstanding on time, not overusing the provided credit card limit, etc. can lead you to higher credit scores and save you from getting your limit decreased.