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Everything You Need to Know About Credit Limits

Using credit responsibly includes understanding credit limits and how they can affect your finances. Let’s take a look into some common questions surrounding credit limits and what they mean for consumers.

What is a Credit Limit?

When a consumer opens a new credit card, that card includes a credit limit, which is the amount of credit available to spend. Depending on the consumer’s current credit and financial situation, the limit can range from a few hundred to many thousands of dollars.   Young woman and man discovering they have received a higher credit limit

Do All Credit Cards Have Credit Limits?

There are some credit cards with no pre-set spending limit. These cards are generally reserved for customers with high incomes and excellent credit. Often, these are “invitation only” offers available to very few consumers.

What Determines the Credit Limit?

Credit card issuers don’t share the exact calculations they use to determine customers’ credit limits. But, we know the factors they take into consideration include an applicant’s current credit report and score, income, limits on other cards, and your co-applicant’s information if you are applying for a joint account.

What Happens if I Go Over the Limit?

Most credit cards will not allow customers to continue charging once a card is charged up to the limit or “maxed out.” Some cards offer opt-in over-limit protection plans that will allow the transaction that places the balance over the top to go through. Depending on the terms of the plan, you may be charged additional fees for this service.

Additionally, you could end up over the limit if your balance is near the maximum and that month’s interest charges put you over the top. If that happens, do your best to get the balance down quickly.

Can I Get a Higher Credit Limit?

Many credit card issuers will raise your credit limit after you have used the card responsibly for a period of time. That means keeping the balance well below the limit and making on-time payments every month. Consumers can also request a higher credit limit, but there’s no guarantee the request will be granted. If the consumer initiates the request, they should be ready to answer additional questions about income and other financial issues.

When Should I Ask for an Increase?

The best time to ask for a credit limit increase is when you don’t actually need one. That’s because you’ll want to keep as much of that new limit showing as “available credit” as long you can. This can help your credit score and overall credit profile.

How Do Credit Limits Affect My Credit?

Credit utilization, or how much of your available credit you have in use, is one of the major factors that determines your credit score. Ideally, you want to keep overall credit utilization at 30% or less. If you have one or several credit cards at or near their limits, make every effort to begin paying down those balances. It will take time, but as you free up more of your available credit, you’ll see your credit score improve.

If you need help working out a budget that allows you to start paying more than the minimum balances on your credit cards, take our free online financial review. It’s the first step in finding a manageable debt repayment solution.

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