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How does a billing cycle impact my credit limit?

Curious about credit card billing cycle

How does a billing cycle impact my credit limit?

The billing cycle does not directly impact your credit limit. Your credit limit is determined by the credit card issuer when you are approved for a credit card, and it represents the maximum amount you can borrow on your card.

However, the billing cycle can indirectly affect your credit limit in the following ways:

1. Credit Utilization: Your credit utilization ratio is the percentage of your credit limit that you are currently using. It is an essential factor in determining your credit score. The credit utilization ratio is calculated by dividing your current balance by your credit limit. For example, if your credit limit is ₹50,000 and your balance is ₹10,000, your credit utilization ratio is 20%. A lower credit utilization ratio is generally better for your credit score.

During the billing cycle, your credit card issuer will report your statement balance to the credit bureaus. If your statement balance is high compared to your credit limit, it can result in a higher credit utilization ratio, which may negatively impact your credit score.

2. Temporary Decrease in Available Credit: If you have a balance on your credit card at the end of the billing cycle, that amount will be temporarily deducted from your available credit until you make a payment. This means that during that period, your available credit will be reduced by the amount of your balance.

It's important to manage your credit utilization and keep it as low as possible to maintain a healthy credit score. You can do this by paying your balance in full or keeping it at a low level relative to your credit limit. Additionally, you can make multiple payments throughout the billing cycle to keep your balance lower and your credit utilization ratio in check.

Remember, while the billing cycle does not directly impact your credit limit, it can influence your credit utilization ratio, which is a significant factor in credit scoring models.

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