Your credit limit is the maximum amount of money you can borrow on a credit card. It is normally determined by the lender, who uses your credit report and information on your credit application to set the limit. Show
There are certain things that your credit limit can affect, depending on how you manage it – learn more on the best practices for managing your credit limit. The Do’sDo aim for a sensible credit limitWhen you apply for credit, the amount you ask for can affect whether your credit application is approved. Asking for a very high limit may indicate that you desperately need the money, which can make you appear financially stretched. Requesting a low limit may inhibit spending, and may require you to use a larger portion of the credit available to you. Using most, or all of the available credit may negatively impact your credit score as it can indicate that you are financially stretched, even if your limit is quite low. Aiming for a middle ground that can support your financial commitments but does not appear as though you are financially stretched, can indicate to lenders you are responsible and may help to increase your chances of a successful application. Do restrict applications for a higher credit limitWhen requesting a higher credit limit, a lender will search your credit history which can leave a mark on your credit report. A high number of these searches may suggest that you are financially stretched and may make lenders reluctant to increase your limit. Making fewer applications overall, as well as limiting them to the card with the most attractive interest rates can help reduce the number of credit checks made in your name, which could limit the possible negative impact, and improve the chances of a successful application. The Don’t’sDon’t exceed the limitIf you regularly stay close to or exceed your credit limit, it can indicate that you have financial difficulties, which may affect future applications. Don’t get a disproportionately high limit for your salaryConsidering how much you will be able to afford to pay each month can help you decide on what credit limit would be suitable. If you apply for more credit than you can repay, it could lead to troubles with debt later on or could mean your application is rejected. Don’t use a large proportion of your limitUsing a small amount of credit relative to your total limit can indicate good money management and that you do not need to borrow large amounts of money. Using a larger proportion of your limit can indicate that you are financially stretched. Don’t ask for more credit too soonAsking for a limit rise within 6 months of receiving a new credit card can indicate financial difficulties, and lenders may be less willing to give you more credit. Waiting for your lender or bank to automatically increase your credit limit could be the best option, as it avoids making a request that might negatively impact your credit score. Why Your Credit Limit MattersCredit can be a useful and essential part of the modern financial world, and your credit limit can be an important factor in demonstrating how responsible you are with credit. Being sensible with your spending may help increase your credit limit and help improve your credit score, which in turn, could help in future financial matters, such as applying for a loan or mortgage. Take a look at your Equifax Credit Report & Score, which is free for 30 days and £7.95 a month thereafter, to learn more about your credit history. We understand that things change. That's why we've made it possible to increase and decrease your credit limit to make sure it works for you. Changing up your credit limit could be a good way to achieve a goal, but it could also be risky – here's a few things you should know. Potential pros of a credit limit increaseHave access to more money This could be handy if you're planning to book a holiday or buy a big-ticket item Peace of mind It could act as a safety net in case an emergency or unexpected expense pops up Accrue benefits easier Being able to spend more money means you could make the most of certain perks and benefits with your card
Potential downside of a credit limit increase
Potential pros of a credit limit decreaseStay in control By limiting the amount you can spend before you have to pay it off, you could find it easier to keep on top of your balance Accrue less
interest Remember, it's important to pay off your whole balance (excluding any balance transfer amount) by the due date each month to avoid purchase interest Help prevent debt Having a lower credit limit could help to prevent extra interest and debt building up long term to a point where it's unmanageable
Potential downside of a credit limit decrease
Keep readingThe information contained in this article is of a general nature and is not intended to be nor should it be considered as professional advice. You should not act on the basis of anything contained in this article without first obtaining specific professional advice. Also to the extent permitted by law, Bankwest, a division of Commonwealth Bank of Australia ABN 48 123 123 124 AFSL / Australian credit licence 234945, its related bodies corporate, employees and contractors accept no liability or responsibility to any persons for any loss which may be incurred or suffered as a result of acting on or refraining from acting as a result of anything contained in this article. |