Planning to get a credit card? Here's how you can decide card limit

Highlights

• There were 29.1 million credit cards which were in operations, till February 2017, as per RBI data
• Your credit utilization should be 10-30% of the limit
• Have multiple credit cards if your card utilization is high

Since demonetisation, more people are moving towards "card payments". 

According to the Reserve Bank of India data, till February, 2017, there were 29.1 million credit cards which were in operations.

But, keeping credit cards is not every one's cup of tea simply because it involves risk in case of payment failure.

To be on safer side, the credit card limit comes into play. Now, the question is how to decide the credit card limit? 

The simple answer to this is, the higher the credit limit, the better. 

Explaining it in detail, Navin Chandani, Chief Business Development Officer, BankBazaar, said, "The credit limit is not as important as your debt utilization. The debt utilization or debt-to-limit ratio is calculated by dividing what you've spent by your total credit limit."

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This could be explained with an example. For instance, if your credit limit is Rs 50,000, and you spend Rs 40,000 using your card, your debt utilization is 80%. However, if your credit limit is Rs 1.5 lakh and you spend Rs 40,000, your credit utilization is less than 27%. The lower your debt-to-limit ratio, the better your credit score will be.

As a rule, it is best to stick to a 10-30% utilization. For instance, if your credit limit is Rs.1,00,000, use just Rs.20,000-30,000 a month on it. This would make you look like someone who uses credit in a responsible manner. 

Does that mean you should have multiple cards?

This depends on your utilization. If your credit card utilization is high, then you should keep multiple cards. You can spread your spending across cards. However, keep in mind that defaulting on credit card payments can be a huge detriment. 

So do not spend more than what you can afford to repay, and make payments on time. Multiple cards may have different repayment dates, so keep track of all the due dates so that you don’t default, Chandani said. 

Hence, before getting a new credit card, do not forget to check your debt utilization or your card using habit.