What is a Credit Limit?

A credit limit refers to the total amount you can spend on your credit card each month and this can go up or down depending on your spending patterns and the provider’s criteria. If you spend over your credit limit, you will usually be charged fees.

Credit limit example: if you have a credit limit of £1,000 and you have already spent £500, then you will only be allowed to spend another £500 as this is your total credit limit.

You should aim to pay off the balance in full each month so that you do not accrue high levels of interest. In addition, when this amount is paid off, it means your original credit limit is reinstated and you can spend up to the original credit limit amount once again.

How do you find out your credit limit?

Finding out your credit limit is easy, and credit card providers are required to be transparent about it by the FCA. When applying for a new card, you are informed of the maximum limit you can have prior to going through a credit check (leaving a hard search footprint on your file).

Otherwise, if you need a reminder, you can check your credit limit in a variety of ways:

  • Looking at your most recent credit card statement
  • Contacting your card provider by phone, email or post
  • Signing into your credit card account online or via the app

How is a credit limit calculated?

The underwriting process used by credit card providers determines your credit limit, as well as the level of interest you will be charged on your card.

Generally speaking, the underwriting process involves using proprietary methods and other formulas to calculate your credit limit. Keep in mind that different underwriting methods are used by credit card companies.

Things taken into account during the underwriting process may include:

  • Your credit history
  • Your repayment history
  • Your debt-to-income ratio, if you have one
  • Your income
  • Your employment

Can your credit score affect your credit limit?

Yes, typically the better your credit score, the higher your credit limit. If you start to miss payments or your credit score falls, you may be offered lower credit limits. However, it will vary from provider-to-providers.

With most cards, a hard credit search will be carried out to see if you:

  • Have missed payments in the past, and if so, how recently and how many
  • Have outstanding debts (this includes other credit cards as well as short term loans, overdrafts or a mortgage)
  • Existing credit that you have (for example another card or an overdraft you currently aren’t using)

Can a credit limit be changed?

Yes, it is possible for a credit limit to increase or decrease.

You could request for your credit limit to be raised and likely be approved if you have used it regularly and made prompt repayments each month.

In some cases, the credit limit is automatically raised by your provider or you may be notified by them that you can raise the limit if you so wish.

Your credit limit could also be decreased. Reasons for this can include the following:

  • You have missed minimum card repayments
  • Exceeding the credit limit
  • Not using the credit card regularly
  • Your credit score has got worse since taking out the credit card, through using other products

What happens if I go over my credit limit?

You should avoid going over your credit limit as there can be implications for doing so. For example:

  • You might not be able to use the card until some of the balance has been paid
  • You will usually be charged a fee by the credit card provider
  • It could lead to a black mark on your credit file, making it harder to access credit in the future
  • A credit limit reduction could be implemented
  • You may be charged a higher APR
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