EyeOnWhat it means
The limit is set by the lender when the account opens, based on its assessment of your income, existing debts and credit record. It can be raised or lowered later, by request or by the lender.
It is a ceiling set by the lender, not a figure that is affordable for you. Staying well below it is a personal budgeting choice.
How it works
Going over the limit may be refused, or it may trigger fees or a higher rate depending on the terms. Your available credit is the limit minus the balance and any pending transactions.
A limit change affects your utilisation percentage, which scoring models can take into account.
A simple example
A card has a 3,000 limit and a 1,200 balance, so 1,800 is available and utilisation is 40%. If the lender raises the limit to 4,000 and the balance stays the same, available credit becomes 2,800 and utilisation falls to 30%. The borrowing and the monthly interest are unchanged.
Things worth checking
- A limit increase request may involve a hard credit check; ask first.
- Lenders can reduce limits, sometimes without much notice.
- A higher limit can be useful flexibility or a temptation, depending on your habits.
- Check how card limits are shared if you have joint or additional cardholders.
How it varies by country
Rules about how limits are assessed and changed, including any requirement to check affordability, differ by country.