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Anonymous
Quite new to this credit card game but I am eyeing on some expensive purchases. I only use credit card cos i think the cashback is good especially for big ticket item.
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Elijah Lee
31 Aug 2020
Senior Financial Services Manager at Phillip Securities (Jurong East)
Hi anon,
Your credit limit is the maximum amount that you can spend on your card.
Effectively you are spending the bank's money first (the credit) and paying it back later when you get the statement (with a grace period that is interest free). This is different from a debit card whereby the cost of whatever you have purchased is immediately deducted from your bank account.
So if your credit limit is $6K, you can't spend more than that on the card, unless you pay it off first. The key to effective credit card usage is to 1) pay your bills on time 2) utilize it for benefits such as cashback, points or miles and 3) pay your bills on time. Yes, I said it twice, it's that important. Don't get sucked into making the minimum payment or you'll potentially spiral out of control. Does this mean you shouldn't use a credit card? Definitely not. Responsible and prudent usage is important to build your credit history so that you can borrow money in future (say, a mortgage).
Typically your credit limit on an individual card is 4 times your monthly income. And the total limit of unsecured credit is 12 times your monthly income. Having said that, it's definitely not a blank cheque. Consider if the purchase is necessary in the first place, before even considering to put it on a credit card.
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Hi there!
Think of the limit as a loan of $6,000, where you get to spend any amount up to $6,000 in...
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Hi anon, if the item you intend to buy is above the limit, you can always prepay your credit card first. So in your example of $7k, you can prepay $7k ish and the purchase should be able to go through.
I've never personally tried before but my friends have as all our credit limits are low but we wanted just one person to settle all our holidays pre-bookings so we only repay that one person :)