What is a credit card limit?

Knowing how much you could borrow safely can help you stay in control of your finances

Understanding credit

Whether you’re using a credit card, dipping into your overdraft or taking out a loan, it’s vital to keep in mind the fact the money will have to be repaid at some point in the future.

It may be more likely that with a credit card, if you’re shopping, or perhaps on holiday, you can lose track of how much you are spending, which could lead to a nasty surprise when your statement arrives.

This is why there’s a cap on the maximum amount of money you’re allowed to borrow, known as a credit limit.

An appropriate credit limit will be set by your lender once they’ve reviewed your earnings, previous debts, and spending habits.
 

What is a credit limit?

A credit limit is the maximum amount of money you can borrow on a credit card at any given time. Credit limits are set by a lender and are unique to each individual. Over time, your credit limit may change - whether you’ve requested a higher or lower limit yourself, or it has been changed by your lender.
 

How is a credit limit decided?

When you apply for a credit card, your lender will consider a number of key factors before accepting your application and deciding on a credit limit. The aim is to offer you a credit limit that lenders are confident you can manage.

To determine your credit limit, lenders will look at:

• Your disposable income - in other words, the money that’s left in your bank account after you’ve paid your bills and regular outgoings.
• Your debts - how much money you already owe, including mortgages, loans, and other credit cards.
• How much available credit you already have - for example if you have other cards with high limits.
• Your repayment history - lenders want to know how responsible you’ve been when repaying debts in the past. A good track record of regular payments may give them confidence you will avoid problem debt in the future.
   

What is a good credit limit?

A good credit limit is one that is right for you; that lets you borrow responsibly, without taking on debt you will not be able to manage. Adopting and maintaining good money habits may improve your chances of being offered one or having a request for a higher credit limit approved, here’s a few that may help.

• Never miss a payment. Paying your bills on time will show your lender that you’re financially responsible to take on a higher credit limit. Paying a credit card bill just one day late could decrease your chances of a credit limit increase in the future.
• Remain patient. The longer you've had your credit card, the more likely you are to have your credit limit increased.
• Use your card regularly and always spend within your means. Avoid spending too close to your credit limit.
   

Can I go over my credit limit?

Some credit card providers will automatically decline any purchases that would exceed your credit limit, but not always. If you do go over your limit, there may be consequences – you could be charged a fee and your credit score may be affected. And, if you repeatedly exceed your credit limit, you could be at risk of having it lowered. Lenders may even ask you to pay back the full debt and close your account altogether.
 

Can I change my credit limit?

You can request to change your credit limit by getting in touch with your lender. Once you’ve told them what credit amount you’d like, they’ll once again review your finances before either declining or approving your request. In some cases, your lender may offer you a credit limit they believe is more reasonable than the limit you’ve asked for. Each lender has a policy on credit limit increases and decreases. Some only offer an increase once you've had your card for a specific period of time.

It’s important to familiarise yourself with your lender's policy before requesting a change, and to consider how your credit limit change might impact your financial situation. A higher credit limit could put you at risk of borrowing too much, which could increase your debts and take you longer to pay back. Setting a limit too low could lead to you exceeding your limit and incurring changes and impacting your credit score.

If you feel you’re in either of these situations you should contact your credit card provider.