What is a Credit Card Limit?

Your credit card limit is the highest amount your card issuer allows you to access. You typically can’t swipe your card beyond your credit limit, though some issuers may allow you to do so but may tack on additional fees.

No matter how small or large your credit limit is, managing your card’s balance responsibly helps open doors to your future money goals, like buying a car or financing home improvements.

Let’s break down how credit limits work to help you understand the ins and outs and make your credit cards work harder for you.

How do credit card limits work?

A credit card limit is the maximum amount of available credit you can access on your credit card. Your credit limit is set by the credit card issuer based on how much money they think you can manage responsibly. Every lender has their own process for setting credit limits.

If you have limited or no credit history, lenders won’t have a historical view into how well you can manage debt. In this case, you may start off with a low credit limit, like $200 for example. As you responsibly manage your debt, you may see your credit limit go up.

If your credit history shows that you responsibly manage debt, credit card issuers may be more likely to offer you a higher starting credit limit when you apply for a new card.

How are credit limits typically determined?

Below are some factors that lenders could consider when deciding on your credit limit:¹

• Income: Card issuers usually ask about how much income you receive and use that number to assess your ability to repay your card balance.

• Payment history: The issuer will review your payment history to see if you typically make your payments on time and assess any risk. This may include auto, rent or mortgage, credit card and utility payments.

• Credit utilization: Your level of credit utilization reflects how much of your total available credit you're actually using. If you show a lower level of credit utilization you may be able to qualify for a higher credit limit.

• Economic conditions: Your credit limit can also be affected by the overall state of the economy. This is a risk factor for the lender and something outside of your control. If economic conditions are uncertain or declining, you may be offered a lower limit.

What happens if you spend beyond your credit limit?

If you’re spending more than your available credit limit, your card issuer may decline the transaction. Some issuers allow transactions in excess of your credit limit to post, but those transactions will come with an overlimit fee, and if your account already has a balance, more interest charges.

Going over your credit limit could lead to a higher balance you may not be able to pay back on time, which could steer you into unmanageable debt.

A high credit utilization ratio could also negatively impact your credit score. Paying your credit card balance in full each month is one way to help maintain a utilization rate of no more than 30%.² Being approved for a certain credit card limit doesn’t mean you’re expected to use the entire amount. Credit cards can be effective financial tools but should be used wisely. They can give you the ability to strengthen your credit history and improve your score, or they can put you in a tight financial spot.

What is the danger of having an unrealistically high credit card limit?

The risk of having a credit limit that’s too high for your financial situation is the increased temptation — and ability — to spend beyond your means. While a higher limit can offer flexibility, it can also lead to overspending, especially if it doesn’t align with your budget or income.

Credit cards often come with higher interest rates than other types of credit, like personal loans. If you carry a large balance from month to month and only make minimum payments, interest charges build up quickly — making it harder to pay down your debt.

How to increase your credit limit

If you need a bit more flexibility with your credit card to make larger purchases or have an extra cushion in case of emergency, you could look into the different ways of possibly having your credit limit increased. However, you generally cannot increase the limit on your own — it's either granted (or denied) by the issuer if you ask for a limit increase or automatically adjusted by the issuer based on how you’ve been handling the account. In either case, the decision is ultimately up to the lender, based on factors like your credit history, income and payment behavior.

Accept an increase offer from your card issuer

If you maintain a low balance and a history of on-time payments, the credit card issuer may automatically raise your limit. Issuers typically ask for annual income updates so they have the most current information about your financial status.

Request an increase

Some lenders let you request a credit limit increase. But keep in mind that this request may include a hard inquiry (when a lender checks your credit to make a decision) and could temporarily affect your credit score. You’ll usually enter information like your income and regular expenses before getting a decision from your card issuer.

It’s also important to note that your card provider may not approve your request if you already have multiple credit cards or they believe you have too much credit.³ In some cases, having more available credit could increase the risk of falling into debt.

Apply for another credit card

If you don’t qualify for a credit limit increase on the card you already have, you can apply for a different credit card from another issuer. But having another card means you’ll have another hard credit pull with the same consequences described above and more responsibility to maintain on-time payments and keep your balance low. Be sure to consider all your options and the reason for applying before you move forward.

How to decrease your credit limit

If you want to decrease your credit card limit to avoid overspending, it could raise your utilization rate (unless you have a $0 balance), which may negatively affect your credit score. But if you still want to lower your limit, you can usually call your credit card company to discuss your options with a customer service representative.

Know your limits

Used responsibly, your credit card can be a great way to build your credit history and, if a program is available, earn rewards. Keep in mind that cards with reward programs generally have an annual fee, raising the cost of the card, versus a simpler, basic card program that may not have an annual fee. The key is to set your own spending limit so you can comfortably pay your balance each month. Once you’ve mastered healthy spending habits, you can get a little closer to reaching your money goals.

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Sources

1 https://www.nerdwallet.com/article/credit-cards/how-credit-card-limits-determined
2 How Much of My Credit Card Should I Use?
https://www.nerdwallet.com/article/finance/30-percent-ideal-credit-utilization-ratio-rule
3 https://www.thebalancemoney.com/possible-reasons-your-credit-limit-increase-was-denied-961102

This article was updated from its original posting in 2022. Andrea Hoyt and Kim Gallagher contributed to this post.