When it comes to credit cards, there are many terms and concepts that can be confusing, especially for those who are new to the world of credit. Two such terms that are often used interchangeably are “combined limit” and “combined balance.” While they may seem similar, there are some important differences between the two.
What is a Combined Limit?
A combined limit refers to the total credit limit that is available across all the credit cards that you have with a particular issuer. For example, if you have two credit cards with a particular bank, each with a credit limit of $5,000, then your combined limit with that issuer would be $10,000.
The advantage of having a combined limit is that it allows you to spread your spending across multiple cards, which can help you stay within your overall credit limit. For example, if you have a combined limit of $10,000 and you need to make a purchase that costs $7,000, you could use one card for $5,000 and the other card for $2,000, rather than maxing out a single card.
It’s worth noting that not all credit card issuers offer combined limits. Some issuers may require that you apply for each card separately and have separate credit limits for each card.
What is a Combined Balance?
A combined balance, on the other hand, refers to the total amount of money that you owe across all the credit cards that you have with a particular issuer. Using the example above, if you have two credit cards with a bank, each with a balance of $2,000, then your combined balance with that issuer would be $4,000.
The advantage of having a combined balance is that it allows you to see your overall debt with a particular issuer in one place. This can be helpful when creating a debt repayment plan, as it allows you to see how much you owe and prioritize which debts to pay off first.
It’s worth noting that the interest rate you charged on your combined balance may vary depending on the interest rate for each individual credit card. For example, if one of your credit cards has a lower interest rate than the other, then you may want to prioritize paying off the higher interest rate card first to minimize the amount of interest you pay over time.
What are the Differences Between a Combined Limit and a Combined Balance?
While combined limits and combined balances may seem similar at first glance, there are some key differences between the two:
- What they measure: A combined limit measures the total amount of credit that is available to you across all your credit cards with a particular issuer, while a combined balance measures the total amount of debt that you owe to that issuer.
- How they are calculated: A combined limit is calculated by adding up the credit limits on all your credit cards with a particular issuer, while a combined balance is calculated by adding up the outstanding balances on all your credit cards with that issuer.
- How they are used: A combined limit is used to determine how much credit you have available to use across all your credit cards with a particular issuer, while a combined balance is used to determine how much debt you owe to that issuer.
- How they affect your credit score: A combined limit generally has a positive effect on your credit score, as it increases the amount of credit that is available to you. A combined balance, on the other hand, can have a negative effect on your credit score if it is too high, as it increases your overall debt-to-credit ratio.
In general, it’s important to keep both your combined limit and combined balance in mind when using credit cards. Keeping your balances low and paying them off in full each month can help you maintain a healthy credit score, while keeping your combined limit in mind can help you stay within your