Your credit limit is the maximum amount of money you can borrow on a credit card. It isnormallydetermined by the lender, who uses your credit report and information on your creditapplication to setthe limit.
There are certain things that your credit limit can affect, depending on how you manage it –learn moreon the best practices for managing your credit limit.
The Do’s
Do aim for a sensible credit limit
When you apply for credit, the amount you ask for can affect whether your credit applicationisapproved.
Asking for a very high limit may indicate that you desperately need the money, which can makeyou appearfinancially stretched.
Requesting a low limit may inhibit spending, and may require you to use a larger portion ofthe creditavailable to you. Using most, or all of the available credit may negatively impact yourcredit score asit can indicate that you are financially stretched, even if your limit is quite low.
Aiming for a middle ground that can support your financial commitments but does not appear asthough youare financially stretched, can indicate to lenders you are responsible and may help toincrease yourchances of a successful application.
Do restrict applications for a higher credit limit
When requesting a higher credit limit, a lender will search your credit history which canleave a mark onyour credit report. A high number of these searches may suggest that you are financiallystretched andmay make lenders reluctant to increase your limit.
Making fewer applications overall, as well as limiting them to the card with the mostattractive interestrates can help reduce the number of credit checks made in your name, which could limit thepossiblenegative impact, and improve the chances of a successful application.
The Don’t’s
Don’t exceed the limit
If you regularly stay close to or exceed your credit limit, it can indicate that you havefinancialdifficulties, which may affect future applications.
Don’t get a disproportionately high limit for your salary
Considering how much you will be able to afford to pay each month can help you decide on whatcreditlimit would be suitable. If you apply for more credit than you can repay, it could lead totroubles withdebt later on or could mean your application is rejected.
Don’t use a large proportion of your limit
Using a small amount of credit relative to your total limit can indicate good moneymanagement and thatyou do not need to borrow large amounts of money. Using a larger proportion of your limitcan indicatethat you are financially stretched.
Don’t ask for more credit too soon
Asking for a limit rise within 6 months of receiving a new credit card can indicate financialdifficulties, and lenders may be less willing to give you more credit. Waiting for yourlender or bankto automatically increase your credit limit could be the best option, as it avoids making arequest thatmight negatively impact your credit score.
Why Your Credit Limit Matters
Credit can be a useful and essential part of the modern financial world, and your creditlimit can be animportant factor in demonstrating how responsible you are with credit. Being sensible withyour spendingmay help increase your credit limit and help improve your creditscore, which in turn, could help in future financial matters, such as applying for aloan ormortgage.
Take a look at your Equifax CreditReport & Score, which is free for 30 days and £14.95 a month thereafter, tolearnmore aboutyour credit history.
FAQs
DON'T reach your credit limit or “max out” your cards. DON'T apply for more credit cards if you already have balances on others. DON'T ignore the warning signs of credit trouble. If you pay only the minimum balance, pay late or use cash-advances to pay daily living expenses, you might be in the credit danger zone.
How much of your credit limit is OK to use? ›
Experts generally recommend maintaining a credit utilization rate below 30%, with some suggesting that you should aim for a single-digit utilization rate (under 10%) to get the best credit score.
How much of a $2500 credit limit should I use? ›
You should use less than 30% of a $2,500 credit card limit each month in order to avoid damage to your credit score. Having a balance of $750 or less when your monthly statement closes will show that you are responsible about keeping your credit utilization low.
What should and shouldn't I use my credit card for? ›
They advise against using your credit card to pay for things like rent, gas, cash advances, medical bills, buying a car, and expensive events like weddings. While it can be tempting to put everything on your debit card for budgeting purposes, there are financially savvy reasons to swipe your credit card.
How much should I pay on a $500 credit card? ›
$500 — When you have a credit limit of $500, ideally your balance is $150 or less. $1,000 —If your credit line is $1,000, this means you should aim for a balance of $300 or less to maintain your credit utilization.
What happens if I use 90% of my credit card? ›
Helps keep Credit UtiliSation Ratio Low: If you have one single card and use 90% of the credit limit, it will naturally bring down the credit utilization score. However, if you have more than one card and use just 50% of the credit limit, it will help maintain a good utilization ratio that is ideal.
Is it bad to have zero balance on a credit card? ›
Keeping a zero balance is a sign that you're being responsible with the credit extended to you. As long as you keep utilization low and continue on-time payments with a zero balance, there's a good chance you'll see your credit score rise, as well.
Is $20000 a high credit limit? ›
Yes, $20,000 is a high credit card limit. Generally, a high credit card limit is considered to be $5,000 or more, and you will likely need good or excellent credit, along with a solid income, to get a limit of $20,000 or higher.
What is a decent credit limit? ›
If you're just starting out, a good credit limit for your first card might be around $1,000. If you have built up a solid credit history, a steady income and a good credit score, your credit limit may increase to $5,000 or $10,000 or more — plenty of credit to ensure you can purchase big ticket items.
Is it good to pay off a credit card after every purchase? ›
By paying your debt shortly after it's charged, you can help prevent your credit utilization rate from rising above the preferred 30% mark and improve your chances of increasing your credit scores. Paying early can also help you avoid late fees and additional interest charges on any balance you would otherwise carry.
Not paying on time
Missing or late credit card payments can have a big impact on your credit score and fees. Credit-scoring companies like FICO® and VantageScore® weigh your payment history as an important factor in your credit score.
Is it OK to have a credit card and never use it? ›
Not using a credit card isn't necessarily a bad thing. However, it can come with some unintended consequences. Although charging inactivity fees is no longer legal, issuers have other options at their disposal — some of which could affect your credit score, your available credit and more.
What bills should I not pay with a credit card? ›
Mortgages, rent and car loans typically can't be paid with a credit card.
What happens if you go over your credit limit but pay it off? ›
Going over your credit limit usually does not immediately impact your credit, particularly if you pay down your balance to keep the account in good standing. However, an account that remains over its limit for a period of time could be declared delinquent, and the issuer could close the account.
Is 650 a good credit score? ›
A 650 credit score is generally considered “fair.” A score in this range may limit you from certain financial opportunities. Payment history, monitoring your credit and lowering your credit utilization ratio can be helpful ways to improve this score over time.
Do credit card limits reset every month? ›
Every time you make a payment to your credit card account and that payment is credited to your account, it will reset your credit limit. So if you make a payment every month, then it will reset your credit limit monthly.
How much limit of credit card should be used? ›
The limit is set by the credit card provider. You should aim to spend about 30% of the credit limit and never go beyond the assigned limit. This will ensure you get a good credit score.
Is it okay to use 100% of credit limit? ›
While it is permissible to use 100% of your credit card limit, it is not recommended. Maxing out your credit card can adversely impact your credit score, limiting future borrowing options. Moreover, a high outstanding balance incurs substantial interest, putting you at risk of falling into debt.
Is it bad to use 80% of credit limit? ›
Using more than 30% of your available credit on your cards can hurt your credit score. The lower you can get your balance relative to your limit, the better for your score. (It's best to pay it off every month if you can.)
What percentage of credit card usage is good? ›
A general rule of thumb is to keep your credit utilization ratio below 30%. And if you really want to be an overachiever, aim for 10%. According to Experian, people who keep their credit utilization under 10% for each of their cards also tend to have exceptional credit scores (a FICO® Score☉ of 800 or higher).
