Here what you will need to know about credit card limits, how your credit limit is calculated and how you can change your credit limit.
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 money on your credit card, the amount of available will adjust.
For example, if your credit limit is £3,000 and you have an outstanding balance of £1,000, you will only be allowed to spend up to £2,000.
You can check the credit limit on your card by:
- Signing into your account online or through its online banking app
- Asking your card provider over the phone, post, or email
- Looking at recent statements
- When applying for a new credit card, the provider will tell you the maximum limit you can have before going through a full credit check.
- Check which credit cards providers are likely to say yes when you apply
How is your credit limit calculated?
Credit card companies use a complex process called underwriting to decide how much your credit limit should be and what interest rate to offer you.
Different companies will use different methods, but the process uses formulas and other proprietary methods to factor in your specific financial circumstances.
Factors that affect your credit limit typically include:
- Your credit history and credit score
- Your debt-to-income ratio
- Your income and outgoings
- Your debts, including any mortgages
- Any of your repayment history
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 the provider may run a credit check.
This is normally 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 will run a full credit check when you have chosen the limit you want, which will leave a mark on your record.
When your provider runs a full credit check, they will tend to look at:
- Any outstanding debts, like any overdrafts, loans, mortgages, 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 are assessing how reliable of a borrower you are.
If you are offered a higher credit limit, it means that the provider believes that you’ll make all your payments on time.
Does your credit score affect your credit card limit?
Your credit score can impact your credit limit, but that depends on the lender. Although lenders will use their own criteria and algorithms to decide to what limit they offer each customer, having a good credit score can help increase the chances of being offered a higher credit limit.
Your credit utilisation may also be a factor for lenders to consider. Credit utilisation is the amount of credit available that you can use regularly, different lenders will place varying amounts of importance on your utilisation.
Can you change your credit limit?
If you’ve made regular purchases on your credit card and paid off your balance on time, you can request for your credit limit to be raised.
Most credit card companies will typically re-evaluate credit limits every six months or so. Some providers might automatically raise your limit, while some may notify you that you qualify for a raise and give the option to apply for your limit to be raised.
However, credit card companies can also choose to reduce your credit limit. These reasons can include:
You’ve exceeded your credit limit
You’ve missed a minimum repayment
You don’t use your card often
It’s also worth noting that you can ask your provider to reduce your credit limit.
If you find it tempting to spend more when you have a higher credit limit, I suggest requesting a lower limit that can help avoid the temptation to overspend.
If your limit has been lowered you can ask your provider for the reason or for it to be extended again, but they will decide this for themselves and they might not change their mind.
Can you go over your credit limit?
Yes, but this might usually come with a fee that you will get charged with if you go over your limit and you may not be able to spend again until you pay off your part of the balance.
Going over your limit could cause you to:
- Having your credit limit reduced
- Get moved into a higher APR for the card
- Lose any 0% offer you currently have on the card
- Have a black mark on your credit record
You should contact your credit provider as soon as you realise you’ve gone over your limit and offer to pay off the amount of your balance to get within your credit limit again.
