The amount you can put on your credit card will be capped. For some people, the spending stops at a few hundred pounds, but for others it can be many thousands. Understanding your credit limit and how it affects your borrowing power is a key part of managing your money. In this article we explain how credit limits work, how your credit limit may affect your credit score and how to make sure your credit limit doesn’t land you in problem debt.
What is a credit limit?
Your credit card limit is the amount your provider has authorised you to spend on the card before you need to repay some of what you owe. It is the maximum amount your balance can reach between repayments and should be made clear to you when you sign up for the card. Alternatively, you should see the figure on your credit card statements or your online account.
You may also see your ‘available credit’ figure on your statements and online account. This is the difference between your balance and your credit limit – essentially how much more you can spend before you hit your credit limit. For example, if you have a credit limit of £1,000 and a balance of £300, your available credit would be £700.
What is an assumed credit limit?
You will often see the phrase ‘assumed credit limit of £1,200' when you are comparing credit card deals. This is a figure used by lenders as a common example to make comparing different products easier. The credit limit you'll get if your application is successful is likely to be different and will depend on your individual financial circumstances.
What is an advance limit on a credit card?
Your advance limit, also called a cash advance limit, is how much of your credit limit you are able to use as a cash advance. The cash advance limit will be a percentage of your overall credit limit.
The most common form of cash advance is when you use your credit card to withdraw money from an ATM, but it also covers some other transactions. You can read our article ‘What is a credit card cash advance?’ for more information.
How is your credit limit calculated?
The credit card limit you end up with will depend on a few key factors. These can include:
- Your existing debt - Credit card providers will want to avoid giving you the power to spend beyond your means. If you already have debt that needs to be repaid, this will be taken into account when it considers how much you can afford to repay.
- Your income - This is an important part of calculating what you can afford to repay and therefore how much you will be authorised to spend up to. If you have a lot of money coming in, you can afford to have more going out. If you are on a low income, you should not expect a high credit limit.
- Your credit history - Your history of using credit and repaying debt is recorded on your credit file. You can check your credit score to get a good idea of how credit card companies will judge your financial history. A high score suggests you have a strong history of borrowing and spending responsibly, which should help you get a higher credit limit.
- Your existing credit - If you already have a lot of credit available, for example on a second credit card, credit card providers will be wary of giving you more. Your credit limit is calculated based on what you can afford, which will mean taking into account other debts and how much you can already spend on credit cards. Available credit is potential debt, making it very important in affordability calculations.
- Your relationship with the credit card provider - Some providers will offer preferential rates, special deals and higher credit limits to customers who already have a product with that company. This could be another credit card, savings product or current account.
What is a good credit limit?
What constitutes a ‘good’ credit limit is subjective, but a solid rule of thumb is that you should be able to maintain an available credit amount of at least 50%, though some experts may recommend around 75%. This means your credit limit should be high enough for you to spend less than half of that amount through your usual day-to-day spending.
A reasonably high credit limit that you use a low percentage of will keep your credit utilisation low. Getting close to your credit limit each month will keep your credit utilisation high, which can damage your credit score. This is because it suggests to credit reference agencies that you are consistently spending up to the upper limit of what you can afford. For example, with a credit card limit of £1,000, you should be looking to spend less than £500 each month on that card. This suggests to lenders that you can manage credit without being reliant upon it.
On the other hand, it is equally important that your credit limit is not too high. Having a credit limit of £10,000, but only spending £500 on that card each month could make it harder to get a personal loan or mortgage because you already have the potential to borrow a lot of money through your credit card. Too much available credit can also tempt you to overspend.
There are exceptions to this logic, for example if you want to make a significant one-off purchase, you may need to apply for a credit card with a higher limit. Ultimately, a good credit limit is an amount that allows you to maximise the benefits of that card – whether that is spreading the cost of a purchase, earning rewards or building up your credit score – without risking problem debt, damaging your credit score or negatively affecting your future borrowing power. You should always only borrow what you can afford to repay.
Can your credit limit affect your credit score?
There are a few ways your credit limit can affect your credit score. Firstly, your credit score will be affected if you use too much of your available credit and get too close to your credit card limit too frequently. Your credit limit will appear on your credit file, as will your balance. This means prospective lenders will be able to see how close you are to your credit limit. Being too close regularly can suggest you are financially stretched and not in full control of your finances, which will make your credit score go down. On the other hand, consistently using less than half of your available credit suggests you are able to manage your spending responsibly, which can help your credit score.
Your credit score will be negatively affected if you exceed your credit limit, as it suggests you have lost control of your spending and are stretched beyond your means. Asking to increase your limit can have a similar impact because it will usually leave a mark on your credit file, just like applying for a new credit card. Too many marks on your credit file in too short a period of time can make it seem like you are desperate for money and will reduce your credit score.
Keep in mind that your credit score will vary across the three main credit reference agencies in the UK, Experian, Equifax and TransUnion. You can find out how to check each score for free on our 'The best way to check your credit score for free' page.
What happens if you go over your credit card limit?
Going over your credit card limit will be impossible for some cardholders as many providers block you from spending more than the authorised amount. In practice, this means that your card will be rejected and you will be asked to use a different payment method to complete your purchase. With other card providers, the transaction will be allowed to go through and you will exceed your credit limit.
The immediate consequence of this is that you will be charged a penalty fee. Exactly how much will depend on your provider. In some cases, you may also have to pay off the balance in full, have your credit limit reduced or even close your account. You should expect to lose any special offers too, such as an introductory 0% interest rate.
Exceeding your credit limit will appear on your credit file, which could impact your credit score and potentially make it more difficult to access credit in the future. You should always endeavour to stay within your credit limit, but make sure to contact your provider as soon as possible if you think you are in danger of going over it.
How to increase credit card limits
There are a few different steps you can take to try and boost your spending power and get a higher limit on your credit card. For example:
- Ask your existing provider to increase your credit limit - Instead of applying for a new card, stick with what you have and try to improve it. Your current provider will know how you use your card and how well you manage the debt, so it may be more willing to approve a higher credit limit when compared to a different provider.
- Boost your income - Your credit limit is usually heavily influenced by how much money you have coming in, as this is an indication of how much you can afford to pay back each month. Increasing your income is not easy, but it is a way to access a high credit limit.
- Reduce your credit utilisation - Credit card providers will be more likely to increase your credit limit if you are less likely to spend up to the full amount. Keeping your credit utilisation low will show that you can responsibly manage your credit card and spend within your means.
- Increase your credit score - There are a number of ways to increase your credit score without making any drastic changes or having to transform your finances. We list the key options you should explore in our article ‘How to improve your credit score quickly’.
Keep in mind that increasing your credit limit will likely not be the answer to any serious financial problems. Taking on more debt could lead to more interest, missed payments and a dangerous cycle of short-term solutions. Instead, contact any lenders you are struggling to repay and get some free, independent debt advice.
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