What is the credit limit on a credit card?

One of the most important things you know about your credit card is your credit limit, which is the maximum outstanding amount you can have on your credit card at any given time without receiving a penalty.

Managing your credit limit is important for both debt collection and good credit building

Managing your credit limit is important for both debt collection and good credit building

If you’re wondering what the credit limit is for your credit card, check out your billing statement, sign in to your account online, or call a credit card customer service.

How much will the credit limit be?

How much will the credit limit be?

A credit card company sets a credit limit when you first apply for a credit card by evaluating your income, current debt level, and credit history. If you have a new credit history, history of late payment, low income, or high debt, you may be approved for a low credit line.

Unfortunately, you will not know what your credit limit will be until you have completed your application and approved your credit card. (The exception is with a secured credit card where your credit limit is usually equal to your security deposit.) If you are (reasonably) dissatisfied with the credit limit you received, you can request a higher or decline credit card.

Your credit limit cannot remain the same while your entire credit card is gone. If you use your credit card wisely and make monthly payments in a timely manner, you can be approved to increase the occasional credit limit, sometimes without having to increase your credit limit.

Similarly, the credit limit can be reduced if your payment habits are lagging or your debt is increasing to a level that the credit card company considers to be risky.

Credit limit over previous spending limit

Credit limit over previous spending limit

Some credit cards do not have a solid credit limit. Credit cards without a predefined spending limit don’t give you an infinite amount of available credit.

Instead, these cards have a spending cap that changes based on your current spending habits, income, credit history, and other factors.

How much of your credit limit can you use?

How much of your credit limit can you use?

You can make purchases up to your credit limit, but you may not be able to go beyond your credit limit, especially if you have not chosen to process limit transactions. Exceeding your credit limit can lead to a marginal fee and can trigger a penalty. Check your credit card agreement to see if your card issuer has been fined for exceeding your credit limit.

Exceeding your credit limit, even approaching it, will affect your credit score. Your credit limit – and your credit card balance – is reported to credit bureaus every month with your other account information. This information is used to calculate your credit score and factor into the “credit utilization” portion of your credit score.

Credit utilization measures the amount of your credit limit used and counts to 30% of your credit score. The higher your credit card balance, relative to your credit limit, the higher your credit utilization and the better your credit score. It’s best to keep your credit card balance in the range of 10% to 30% of your credit limit to get the best credit score.

Your credit limit is reusable. You can use your credit more and more as long as you pay on time every month and keep your account in good standing.