How do credit card limits work?

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Here is everything you need to know about credit card limits, how your credit limit is calculated and how you can change your credit limit.

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What is a credit limit?

The credit limit on your card is the maximum amount you are authorised to spend on your credit card. When you spend on your credit card, the amount of credit available will adjust.

For example, if your credit limit is £1,500 and you have an outstanding balance of £1,000, you will only be allowed to spend up to a further £500.

You can check the credit limit on your card by:

  • Signing into your account online or through its mobile app

  • Asking your card provider over the phone, email or post

  • Looking at your recent statement

If you are applying for a new credit card, your provider will tell you the maximum limit you can have before going through a full credit check.

Check which credit cards are likely to say yes when you apply

How is your credit limit calculated?

Credit card companies use a complex process called underwriting to determine how much your credit limit should be and what interest rate to offer.

Different companies use different methods, but the process uses formulas and other proprietary methods to factor in your individual financial circumstances.

Factors affecting your credit limit typically include:

  • Your credit history and credit score

  • Your income and expenses

  • Your debts, including mortgages

  • Your repayment history

  • Your debt-to-income ratio

  • Each credit card provider will use your application form data, along with other details such as your previous borrowing history, to determine your credit limit.

How does your credit history affect your credit limit?

When you apply for a credit card provider may run a credit check.

This is usually done in two stages:

  • Soft credit check: Your provider checks your personal information without leaving a mark on your record.

  • Hard credit check: Most providers run a full credit check when you have chosen the limit you want, which leaves a mark on your record.

When your provider runs a full credit check, they look at:

  • Any outstanding debts, like a mortgage, overdraft, loan or other credit cards.

  •  If you've missed any repayments, by checking your repayment history.

  • What credit is available to you – for example, an unused overdraft or another card.

Here is how to check your credit before applying

Essentially, the credit card company is assessing how reliable a borrower you are.

If you're offered a higher credit limit, it means that the provider is confident that you'll make all your payments on time.

Does your credit score affect your credit card limit?

Your credit score may impact your credit limit, depending on the lender. Although lenders will use their own criteria and algorithms to determine what limit to offer each customer, having a good credit score can help increase your chances of being offered a higher credit limit.

Your credit utilisation may also be a factor that lenders consider. Credit utilisation is the amount of available credit that you use regularly, and different lenders will place varying amounts of importance on your utilisation.

Here is a guide to improving your credit score.

Can you change your credit limit?

If you've made regular purchases on your credit card and paid off your balance on time, you could request for your credit limit to be raised.

Most credit card companies typically re-evaluate credit limits every six months. Some providers may automatically raise your limit, while others may notify you that you qualify for a raise and give you the option to apply for your limit to be raised.

However, the credit card company can also choose to reduce your credit limit. Reasons for this can include:

  • You exceed your credit limit

  • You miss a minimum repayment

  • Your credit record has been damaged by your handling of other cards or loans

  • You don't use your card often

It’s also worth noting that you can ask your credit card provider to reduce your credit limit.

If you find that it is tempting to spend more when you have a higher credit limit, requesting a lower limit can help avoid the temptation to overspend.

If your limit has been lowered you can ask your provider why, or for it to be extended again, although they decide this themselves so might not change their mind.

Can you go over your credit limit?

Yes, but you will usually get charged a fee if you go over your limit and may not be able to spend again until you pay off part of your balance.

Going over your limit could also cause you to:

  • Have your credit limit reduced

  • Lose any 0% offer you currently have on the card

  • Get moved onto a higher APR for the card

  • Have a black mark on your credit record

Contact your provider as soon as you realise you've gone over your limit and offer to pay off enough of your balance to get within your credit limit again.

Find the best credit card for you, whether you're looking for 0% card for balance transfers or purchases or day to day spending and rewards

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