Speaking of a low credit line credit cards, I mean a credit card with a low credit line. This article was written to explain what a low credit line credit card is, and how it can either benefit or affect the owner. Before I can move forward with the main purpose of this article, I need to enlighten you on what credit cards and credit lines (credit limit) are.
A credit card is a plastic payment card issued to users to enable them to pay for goods and services based on the cardholder’s promise to the card issuer to pay them for the amounts so paid plus the other agreed charges. Unlike a charge card that requires the balance to be repaid in full each month, credit cards allow the consumers a continuing balance of debt, subject to interest being charged.
What Is A Low Credit Line
For a better understanding, let us take a look at a credit line is, and some similarities involved. A credit line is the credit source extended to a government, business or individual by a bank or other financial institution. In most cases, the credit line is usually called the credit limit, and it is the maximum amount of credit that a financial institution or other lender will extend to a debtor. The credit limit (credit line) of each credit card determines and monitors the usage of the credit card. It breeches the usage of the card as soon as the limit as been attained. The credit limit of each credit card is based on a variety of factors ranging from an individual’s ability to make interest payments, an organization’s cash flow or ability to repay the credit card debt.
With the understanding of what the credit line (credit limit) is, we can therefore define a low credit line as small amount of credit opportunity offered to a user of a credit card. That is a lower limit of credit usage provided to a credit card user. This low credit line (low credit limit) has its benefits and effects, these we are going to discuss in the next topic.
Pros and Cons Of A Low Credit Line Credit Card
Whenever a credit card is issued, it either has a low credit limit or a high credit limit. This variation in the limit has its benefits and effects. We are going to be taking a look at the pros and cons of a credit card with a low credit line (credit limit).
A credit card with a lower limit is in most time issued after considering factors like your credit history, interest payments and moat especially cash flow. With these factors considered, it is better to continue with a low credit line credit card as it helps manage spending.
On the other hand, a low credit line credit card can actually hurt your credit score as it affects your utilization ratio by reducing the amount difference between your credit limit and your available credit balance.