One of the most important things to know about your credit card is your credit limit. Your credit card credit limit is the maximum outstanding balance you can have on your credit card at a certain point in time without incurring a penalty. Managing your credit limit is important both for staying in debt and building a good credit score.
If you are wondering what the credit limit for your credit card is, check your account statement, log in to your online account, or call your credit card customer service.
How much will your credit limit?
Your credit card company determines your credit limit when you first apply for the credit card. They will assess your income, current level debts and credit history and set a credit limit based on these factors. If you have a new credit history, a history of late payments, a low income or a high level debt you can be approved to start a low credit limit.
Unfortunately, you will not know what your credit limit will be until you have completed your application and are approved for the credit card. (The exception is with a secured credit card where your credit limit is the same as your deposit.) If you are (reasonably) unhappy with the credit limit you have received, you can request a larger one or put the credit card.
Your credit limit may not be the same all the time you have the credit card to stay. If you use your credit card wisely and make your monthly payments on time, you can be approved for periodic credit limit increases, sometimes without having to raise a credit limit. Similarly, your credit limit can be lowered if your payment habits fall behind or your debt rises to a level that your credit card company considers risky.
Credit Limit versus No predetermined spending limit
Some credit cards do not have a firm credit limit. These credit cars do not have a pre-set spending limit. Credit cards without a pre-set spending limit do not give you an infinite amount of available credit. Instead, these cards have a spending limit that changes based on your current spending pattern, income, credit history, and other factors.
How much of your credit limit can you use it?
You can make purchases all the way up to your credit limit, but you may not be able to go over your credit limit, especially if you have not yet signed up for having processed more than limits on transactions. Exceeding your credit limit can result in an over the limit price and can activate the penalty interest. Consult the credit card agreement to see if your card issuer is punishing you for going over your credit limit.
Exceeding your credit limit, and even getting close to it, affects your credit score. Your credit limit – and your credit card balance – is reported to the credit bureaus every month with your other account information. This information is used to calculate your credit score and factors in the “credit occupancy rate” part of your credit score.
Credit utilization measures the amount of your credit limit that is used, and counts 30% of your credit score. The higher your credit card balance, compared to your credit limit, the higher your credit occupancy rate and the more your credit score is hurt. It is best to keep your credit card balances within 10% to 30% of your credit limit to achieve the best credit score.
Your credit limit is reusable. You can use your credit over and over as long as you pay on time each month and keep your account in good condition.