Your Credit Limit – The Do’s and Don’ts
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.
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.
Do aim for a sensible credit limit
When 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 limit
When 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.
Don’t exceed the limit
If 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 salary
Considering 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 limit
Using 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 soon
Asking 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 Matters
Credit 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 £14.95 a month thereafter, to learn more about your credit history.
Start planning for your financial future
Get your FREE* Equifax Credit Report & Score
*Your first 30 days are free then it’s £14.95 per month. You can cancel at any time.
- Different types of credit card
- Newlyweds, financial planning and credit
- Getting credit cards with bad credit history
- What is a guarantor and how do they work?
- Explaining compound interest
- How Credit Scores Affect Car Finance
- How can I improve my credit score?
- Getting credit with no credit history
- Soft credit searches explained
- What to consider when applying for credit cards
- What is a credit rating?
- What types of credit can you get?
- Staying on the electoral register when moving
- The Electoral Register and How It Influences Credit Scores
- 7 types of credit provider
- Credit: Why do People Use it?
- Credit Myths - The truth about Credit
- Interest Rate Types
- Credit Hygiene
- Credit Score: What are the factors?
- Secured Vs Unsecured Loans
- Joint Liability - Everything You Need to Know