learning center

What is a credit limit?

Card issuers won’t let you go wild and buy whatever you want on your credit card.
Find out how credit limits work, and how they might affect your business decisions.
learn article

How does a credit limit work?

Lenders set credit limits on credit cards and other revolving lines of credit. This is the maximum amount of money a borrower can spend on their account. If a borrower exceeds their credit limit, the lender can impose additional charges and penalties.

Multiple factors determine the credit limit a lender offers you. These include your credit score, current financial situation, the amount of debt you have, and your repayment history. According to previous research by Experian, the average credit card limit in the USA is just above $8,000. Lenders will issue low credit limits if they determine you’re a higher financial risk.

Available credit is not the same as a credit limit. Your credit limit remains the same however much you borrow. Your available credit is affected by how much you have already spent. For example, if you have a credit limit of $10,000 and have spent $6,000, your available balance will be $4,000.

Small width image

How can I find out what my credit limit is?

It’s important to know your line of credit or credit card limit to avoid overspending. When you apply, the lender will tell you the maximum credit limit available for new customers. They won’t be able to tell you the exact credit limit you’ll be offered until they have carried out a full credit check.

This can sometimes be an issue, for instance, if you’re transferring an existing balance to a new card with a 0% offer. You can ask the lender to give you an idea of your credit limit before you apply or sign the credit agreement. They may need to conduct a credit check first. You can use eligibility checkers to shop around without it affecting your credit score.

If you already have a credit account, you can check your limit on your recent statement. You can also sign in to your account online, via a mobile app, or ask your lender by phone, email, or mail.

Small width image

Can I change my credit limit?

You will want to be as creditworthy as possible before you investigate how to increase your credit card limit. Lenders won’t increase your credit limit unless you have proven that you’re a responsible borrower. You can do this by making repayments on time and keeping your credit balance below your limit for several months before requesting an increase.

You also need to be able to afford higher monthly repayments. This will only add to the problem if you’re increasing your credit limit because you’re struggling to manage existing debt. If there is a sensible reason for borrowing more, such as higher business expenses, then increasing your limit can be a good idea.

First get authorization from your lender to increase your credit limit. Even if you’re able to spend over your current limit, you should always avoid doing so. You will be subject to additional charges and this may damage your credit rating. Your lender also reserves the right to adjust your credit limit. They may decrease it due to late or missed repayments, damage to your credit rating, inactivity on your account, or because you frequently exceed the limit.

Your lender may offer you an increased limit if they believe you’re a responsible borrower and can afford the repayments. This has a number of benefits, such as more financial flexibility. You don’t have to accept the proposed increase, and can reject the offer or request a smaller increase instead.

Will my credit limit affect my credit score?

Your credit report features information on your existing credit accounts, including the credit limit and current balance. A high credit limit or multiple credit accounts can harm your credit score. If lenders see that you have access to large amounts of credit, they may be concerned that you will overextend your debts. Multiple credit accounts can also be a sign that you are struggling financially. As a result, you could appear to be a high-risk borrower, and lenders may refuse to extend credit to you in the future.

With responsible management, you can use your credit limit to improve your credit score. A credit utilization ratio is the difference between the amount of credit you have available and the amount you are currently using. This tends to be represented as a percentage. For example, if your credit limit is $10,000 and your balance is $2,000, you’ll have a credit utilization ratio of 20%.

Your credit utilization ratio is a major influential factor on your credit rating, impacting your score up to 30%. The lower your ratio, the more responsible you will appear in the eyes of lenders. Credit bureaus generally recommend that you keep your credit utilization ratio to below 30% across all your credit accounts.

Ready to learn more?
Footer image
What are net terms?
Footer image
How can I improve a business credit score?
Footer image
What is a business credit score?
Footer image
What are the different types of credit card APR?