Skip to content

What is a credit limit?

Credit Limit Explained

Victoria Russell
Written by  Victoria Russell
5 min read
Updated: 04 Dec 2023

Knowing your credit limit can save you from expensive mistakes when it comes to credit card spending

Credit cards are an integral part of modern financial life, offering convenience, security, and the potential for rewards. However, with that convenience comes the responsibility of managing your credit limit effectively. Understanding your credit limit, how it is determined, and how to manage it can help you maintain a healthy financial life. 

What is a Credit Limit? 

A credit limit is the maximum balance you can borrow on a credit card at any given time. It is a cap set by the credit card issuer, based on various factors unique to each individual. This limit is communicated to you when you open your account and can be found on your monthly statements or through digital account management tools. 

Woman on the phone with credit card in hand

How is My Credit Limit Calculated? 

Credit card issuers take into account several factors when determining your credit limit: 

  • Income and Financial Situation: Your ability to repay is key, so issuers look at your income and other financial obligations. 

  • Existing Debts: If you already have significant debt, this may affect your credit limit. 

  • Credit History: A good track record of managing credit responsibly helps. 

  • Current Credit Limits: Other limits may influence a new credit limit. 

  • Customer Relationship Length: Long-standing customers may receive higher limits. 

It's important to note that credit card issuers may also use the information in your credit report to determine your credit limit. Therefore, maintaining a good credit score by following our tips to improve your credit rating is beneficial before applying for a new credit card. 

Increasing Your Credit Limit

 Desiring a higher credit limit is common, and there are several ways to achieve this: 

  • Contact your credit provider and request an increase. 

  • Apply for a new card that offers a higher limit. 

  • Maintain good credit habits, such as paying bills on time. 

  • Avoid requesting frequent credit limit increases. 

  • Keep your card for a longer period to show stability. 

  • Ensure you do not miss any payments. 

Remember, a higher credit limit should not encourage overspending but rather serve as a financial safety net. 

What Happens If I Go Over My Credit Limit? 

Exceeding your credit limit can lead to several negative outcomes: 

  • Declined transactions when you attempt to make purchases. 

  • Fees charged by the credit card issuer for exceeding the limit. 

  • A potential drop in your credit score. 

  • A possible reduction in your credit limit or even account closure if overspending is a recurrent issue. 

Avoiding Credit Limit Pitfalls

 To steer clear of going over your limit, consider the following tips: 

  • Regularly monitor your credit card balance and spending. 

  • Set up a direct debit to clear your credit card debt every month. 

  • Sign up for text and email alerts from your credit card issuer to keep track of your spending and balance. 

What is a Good Credit Limit?

 A good credit limit is subjective and depends on your financial situation. Generally, a limit that allows you to use 25% to 50% of it is considered favourable, as it keeps your credit utilization low. This is a positive indicator to credit bureaus and can help maintain or improve your credit score. 

Pros and Cons of a High Credit Limit 

Having a high credit limit can be a double-edged sword. Here's a look at the advantages and disadvantages: 

Pros: 

  • Greater financial flexibility and the ability to handle emergencies or make large purchases. 

  • Lower credit utilization ratio, which can positively affect your credit score. 

  • More opportunities to earn rewards, such as points, cashback, or miles on rewards credit cards

Cons: 

  • The temptation to spend beyond your means, leading to debt. 

  • Increased risk of accruing high-interest payments if balances are not paid in full. 

  • Potential impact on future credit availability, as lenders may be cautious of high existing limits. 

Other useful guides 

We have lots of useful guides to help you with your next credit card decision: 

What is a credit card minimum payment?  

What is an APR? 

Getting your first credit card 

Compare credit cards with MoneySuperMarket 

Finding the right credit card is straightforward with MoneySuperMarket. 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.  

You'll be shown a range of credit cards, which you'll be able to sort according to APR, card features, such as rewards or cashback, and your chances of being approved.  

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.

Ready to compare?
Compare credit cards