Managing Your Credit Limit

24th Dec 2024

Your credit limit is the maximum amount you can borrow on a credit card. It is set by the lender, who considers your credit report and the details provided in your credit application when deciding what limit to give you when you first get the account. How you manage your credit limit can have a significant impact on your financial health. If you prove yourself to be a reliable customer, who pays back the money they borrow every month and never misses a payment, then this will reflect positively on your credit score. It may also mean that the lender offers to increase your credit limit after a set period of time.

Top Tips For Credit Limit Management

• Aim for a Reasonable Credit Limit - When applying for credit, it’s important to request a sensible limit. Asking for too high a limit can make you appear financially overextended, while a very low limit might force you to use a large portion of your available credit, potentially harming your credit score. It’s best to aim for a middle ground that supports your needs without suggesting financial strain.
• Limit Requests for Higher Credit Limits - Each time you request a higher credit limit, the lender may perform a credit check, which can leave a mark on your credit report. Too many of these checks in a short period can make you look financially unstable. Don’t ask for too many limit increases, or try to wait until the lender proactively offers you a higher limit.

There are also some golden rules about things borrowers should avoid doing if they want to keep their credit score healthy. These are:

• Don’t Exceed Your Limit -  Consistently spending up to, or beyond your credit limit can indicated that you might be in financial distress, potentially affecting future credit applications and your overall credit score.
• Avoid Disproportionately High Limits for Your Income – Think about what you can realistically afford to pay each month. Applying for more credit than you can reasonably pay back can quickly lead to debt and a negative effect on your credit score.
• Don’t Max Out Your Credit – Lenders like borrowers who only use a small portion of available credit as this shows good financial management. Using a large percentage of your credit limit can suggest you’re financially stretched.

The Importance of Your Credit Limit

Managing your credit limit wisely is crucial in building a strong credit history. Showing that you are responsible by not maxxing out your credit cards, and paying back on time every month without fail can lead to an increased credit limit and a better credit score. Higher credit scores may in turn open up other possible credit options, as often the best deals and most attractive interest rates are reserved for those customers with a strong track record. It’s easy to keep an eye on your credit rating and see how it changes over time by downloading on of the credit reference agency apps, or by creating an account on their website.