Credit Limit Explained
Knowing your credit limit can save you from expensive mistakes when it comes to credit card spending
What is a credit limit?
A credit limit is the maximum balance you can borrow on a credit card at any given time.
Credit limits are unique to individuals and their personal credit card accounts and are usually set by the lender.
Your credit limit should be stated in correspondence you receive from your credit card provider, who will let you know if it is going to change.
How is my credit limit calculated?
When you apply for a credit card, the lender will look at several factors to determine a reasonable credit limit for you. These include:
How much you earn - in particular, your disposable income after bills and other outgoings
How much you already owe – any debts, such as your mortgage, loans and other credit cards will be taken into account
Your current credit limits - to assess the different lines of available credit you already have before allowing you to take on more debt
Your repayment history – lenders will want to know how responsible you’ve been with paying debts in the past
How long you’ve been a customer - if you’ve been with a provider for a while, it might allow a higher credit limit
Some of this information lenders can see from your credit report, so having a good credit score is important. You can follow our tips to improve your credit rating and get as strong a position as possible before applying for a new credit card.
How do I increase my credit limit?
If you want to increase your credit limit, you need to contact your credit card issuer. Most credit cards will have a number on the back you can call. You then wait for them to make their decision and notify you.
You can also increase the amount you can borrow by taking out a new credit card. Because if you have another credit card you’ll be managing more than one card - and line of credit, but you may find a new card provides more favourable rates.
If you’re turned down for a higher credit limit, it could be because of your credit rating. Steps to improve your credit score can be as simple as registering on the electoral roll. It’s also important to check for any errors on your credit report which could be negatively affecting your credit score.
How can I improve my chances of getting an increase to my credit limit?
If you want your credit card issuer to raise your credit limit, there are some steps you can take to improve the likelihood of being approved:
Don’t ask too many times: Asking often to increase your credit limit may negatively impact your credit score
Use your card responsibly: Use your card regularly to build up your credit history. By using your credit card wisely it can help to improve your score. Make sure not to overspend or veer too close to your credit limit
Keep your card for a while: Having your credit card for a long period of time can be looked on favourably. By keeping the same card for a while it can boost your chances of being accepted for a credit limit increase
Don’t miss payments: Missing payments will negatively impact your credit score. Always make sure to keep up with your monthly card payments
How do I find out what my credit limit is?
You’ll be told your credit limit when you open your credit card account and receive your card. You can also check by looking at your most recent statement. If you manage your credit card digitally – on your mobile phone or online - you’ll also be able to see the limit when you log in.
What happens if I go over my credit limit?
It’s best to avoid going over your credit limit. But if you do exceed it you could:
Be declined a purchase and stopped from spending more on your credit card until you have paid off some of the balance
Incur a fee for breaking your agreed credit limit
Your credit rating could be negatively affected
If you keep on overspending your lender could lower your credit limit, meaning you’ll be able to borrow less in future. They could also ask you to pay back the full amount or close the account.
How do I avoid going over my credit limit?
Knowing your credit limit and keeping tabs on your spending habits will help you stay within your limit. Other tips include:
Direct debit: You can set up a direct debit to clear your credit card debt every month
Text and email alerts: You can sign up for alerts that will notify you if you’re approaching your credit limit
What is seen as a good credit limit?
A good credit limit for you will depend on your individual circumstances and needs. For most credit card holders this typically means a credit limit where they will only need to access around 25% to 50% of that limit at any given time.
Having a lower credit utilisation – the percentage of available credit (or the percentage of your credit limit) that you use – can have a positive impact on your credit rating. Conversely, spending up to your credit limit every month suggests your finances are stretched and this could harm your credit score over time.
A lower credit limit could be best for you if it helps with your monthly budgeting and reduces the temptation to overspend.
A large credit limit can be useful in certain circumstances. For example, if you needed to buy an expensive purchase quickly, such as a car for work. A large credit limit on a 0% interest purchase card could be useful, giving you several months at zero per cent interest to pay off the amount borrowed.
What are the pros and cons of a high credit limit?
There are several advantages and disadvantages to having a high credit limit. These include:
Allows you more flexibility with your finances, including money for emergencies
Enables you to make bigger one-off purchases and then pay them off over several months, ideally with a 0% deal
Your credit utilisation can be kept lower provided you only spend a small percentage of your credit limit
Because you can spend more you can accrue more points, cashback or air miles on specialist rewards credit cards
There could be greater temptation to spend beyond your means and get into debt
You run the risk of being hit with higher interest payments if you only pay the minimum monthly payment on your card and don’t pay off the balance in full every month
It increases the credit available to you which may put other lenders off agreeing to lend to you in future
Other useful guides
We have lots of useful guides to help you with your next credit card decision:
Compare credit cards with MoneySuperMarket
Finding the right credit card is straightforward with MoneySuperMarket. Just tell us a little about yourself, your financial circumstances and what you need from a credit card. And we’ll look across the market to find credit card offers which we think will suit you best.
Different providers handle initial credit limits in different ways. Some will ask you to choose an initial credit limit up to a certain amount – although this will still have to be approved. Others will simply tell you your credit limit when the application has been approved.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.