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Credit cards give you the liberty to borrow money from the credit card issuer at any time. You can pay for goods and services with your credit card and repay the amount at any time. If you don’t want to pay interest then you must pay the balance at the end of the billing cycle, on or before the due date.
What is a credit limit?
Every Bank in Malaysia offer credit cards with a credit limit. A credit limit is the maximum amount that a financial lender or the Bank offers to their borrower. The borrower can only use the credit card to the limit that is already set on the card.
The spending limit or the credit limit is based on the income and usage of the borrower. The financial institution or the Bank checks your income and tax documents and your credit history and sets a credit. The credit usually is 2.5 to 3 times your gross salary and this is based on the risk appetite of the borrower and the credit policy of the Bank or the lending institution.
Rules that govern the credit limits in Malaysia
Following are the rules that govern the credit limits in Malaysia:
- Those who earn RM36,000 per annum or less:
If an individual in Malaysia is earning RM36,000 or less in a year he or she will be bound by the following rules:
- The individual can hold two principal credit cards from two issuers.
- The maximum limit on the card per issuer shall not exceed two times his monthly income.
For example, if your monthly income is RM2,000, your credit limit will be (RM2,000 * 2) with two credit card issuers. The combined limit will be RM8,000.
- Those who earn more than RM36,000 per annum:
An individual who earns more than RM36,000 per annum can:
- Have multiple cards with any number of Banks in Malaysia. This also takes into consideration that each card charges a service tax of RM50 per principal cardholder for a year.
- The individual will be bound to a maximum credit limit. However, the credit limits are imposed by the Banks and the lending institutions and the limit is set at their discretion.
Why is it important to set credit limits?
The credit limit is set after the Banks and the lending institutions check your income and how much you are spending, how much credit you already have and how much you will have left to take care of additional credit.
The credit limit ensures that you will not go on and get into a huge debt. Even if you have used up the limit on your credit card, the Banks and the lending institutions will know that you have the capacity to repay your debt.
Can you increase your credit limit?
Yes, you can increase your credit limit if your income has increased or if you have cleared out other debts. The following are the benefits of increasing your credit limit:
- You have access to more funds and it will come in handy when you are making a big purchase or taking a trip, etc.
- You can take more advantage of the benefits of using your cards.
- Increased limit means that you have more credit available to meet the expenses during an emergency and to pay towards unexpected expenses.
Following are the possible risks to raising your limit:
- You will be tempted to spend more.
- There is a possibility that you will fall in a bigger debt and you may also end up paying more interest.
- You may not get any other credit such as mortgage, home loan, etc. easily as you have increased your credit usage.
Having a low credit limit ensures that you can reduce the temptation to spend more and you will be borrowing well within your safety net. It is always best to stay within the credit limit that was initially offered to you and not to be tempted to use up the credit available to you. Make the payments to your credit cards in time and in full to reap the benefits of having a credit card.