What is a credit limit and how does it work?
Navigating the jargon around credit cards can sometimes feel like learning a new language. One term you'll frequently encounter is ‘credit limit’. But what exactly does it mean, how is it decided and what happens if you go over it? Let's dive into the details.
Navigating the jargon around credit cards can sometimes feel like learning a new language. One term you'll frequently encounter is ‘credit limit’. But what exactly does it mean, how is it decided and what happens if you go over it? Let's dive into the details.
60-second summaryIf you just want an overview of credit limits and how they work, we’ve got you covered:
Got enough info and want to see if could be eligible for a credit card without affecting your credit score? Head to our eligibility checker. |
What is a credit limit?
A credit limit is the maximum amount that you can spend on your credit card. It’s decided by your credit card provider. You’ll find out what your credit card limit is either when you’re offered a card, via your online banking or app (once registered), or when you get your new card.
If you’re keen to know what limit you’ll be given, you can ask the provider before you sign up. They should be able to give you an idea of how much your credit limit will be. But this could mean they’ll do a credit check to make sure you can afford the repayments.
How is credit limit determined?
When you apply for a credit card, your provider will look at several factors to determine how high your initial credit limit will be. They do this by conducting a hard search that will appear on your credit file.
Your credit limit is unique to you and takes into account your financial history and personal circumstances. The credit card provider will look at:
- How much you earn – especially how much income you have left after bills and other outgoings
- Existing debts – whether you have a mortgage, other loans and credit cards
- Current credit limits – how much credit is already available to you
- Other credit you’ve applied for – every application for credit will be marked as a hard search on your credit file
- Your repayment history – how well you’ve managed debt repayments in the past
- How long you’ve been a customer – the provider might give you a higher limit if you’ve been banking with it for a while.
Lenders might sometimes decrease your credit limit if they have concerns around how you’re using your card – for example if you’re missing repayments – or your credit score goes down.
They might also offer a credit limit increase, which you can find out more about in our guide to increasing your credit limit.
Quick tipSpending time improving your credit score before you apply means you’ll have a better chance of being eligible for credit cards with cheaper rates and higher limits. You can find lots of handy tips on how to do this in our guide to building your credit score. |
What happens if you spend over your credit limit?
Spending over your credit limit is a bad idea as it can cause:
- Fees – many credit card companies charge an over-limit fee if you exceed your limit, usually around £12
- Loss of promotional rate – you may lose any 0% or promotional interest rate and be moved onto the lender’s higher standard rate
- Credit score decrease – regularly going over your limit can negatively affect your credit score, as it suggests you’re not good at managing your money
- Declined transactions – your card may be declined at the point of sale, which can be embarrassing
- Frozen card – your lender may stop you using the card until you’ve cleared some of your outstanding balance
- Account closure – if you continue to go over your limit, you may be asked to settle your full balance. Your lender could also decide to close your account.
What is a ‘good’ credit limit?
A ‘good’ credit limit is subjective and depends on your financial situation. A typical credit card limit is around £3,000 to £4,000, but they can be upwards of £10,000.
If you don’t have any credit history and then successfully apply for your first credit card, chances are you’ll be offered a lower limit. This is because lenders don't have any evidence of how you’ve managed borrowing and so may see you as high risk.
If you’re a high earner with a strong history of repaying debt on time, you may be eligible for a high-limit credit card.
But of course, as we mentioned above, there’s more to eligibility than just those two things. For example, lenders will also look at how much existing available debt you have and how long you’ve been a loyal customer, to name but a couple.
You can use our eligibility checker to see whether you’re likely to be offered a credit card, and if so which ones. Our tool only runs a soft search on your credit file, so you can compare without harming your score.
Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.
Check eligibilityTips on how to manage your credit limit effectively
Managing your credit limit wisely is crucial for maintaining and hopefully improving your credit score. Here are some tips to help you:
- Stick to your limit – know your limit and stay under it to make sure your score isn’t negatively affected, and transactions aren’t declined. Ideally, you don’t want to spend more than around 30% of your total available credit limit
- Track your spending – register for online banking and use your lender’s app to check your balance and avoid nearing your limit
- Keep up with your monthly payments – always make at least the minimum monthly repayment (it can be worth setting up a direct debit to make sure you never miss it). Check your statements to make sure everything looks right, from transactions to any interest and fees charged
- Ask for your limit to be changed – if your limit is no longer working for you, speak to your credit card provider about your options for a credit limit increase or decrease.
There’s even more info in our helpful guide on how to manage your credit card.
Does your credit limit affect your credit score?
Yes, your credit limit can impact your credit score. A higher limit can improve your credit utilisation ratio, which is the percentage of your credit limit that you're using. Keeping this ratio to under 30% of your total limit is usually beneficial for your credit score.
What our expert says...
“You might think the higher the credit limit, the better. But remember your credit limit is exactly that: a limit, not a target. Only spend what you’re able to comfortably repay, or you could end up with problems further down the line.
“If you can keep your spending to no more than 30% of the limit, this will indicate to lenders that you’re a responsible borrower and may help with future credit applications.”
- The Editorial Team, Personal finance and insurance experts
Frequently asked questions
Can my credit limit decrease?
Yes, credit card issuers can decrease your credit limit if they see you as a higher risk. This is often due to missed payments or changes in your credit score.
How often can I request an increase?
How often you can ask for a limit increase varies depending on the individual credit card provider. Generally, it’s around every six to 12 months.
The good news is lenders will automatically increase your limit if they can see you’ve been looking after your credit responsibly – though you can opt out of this. Find out more about increasing your credit limit.
Can my credit limit affect loan approvals?
Yes, your credit limit can influence loan approvals. If you have a higher credit limit with low utilisation (in other words, if you’re not spending anywhere near what you could based on your credit limit), this can positively impact your credit score, making you a more attractive candidate for a loan.
Is there a fee for exceeding the credit limit?
Many credit cards charge an over-limit fee – often around £12 – if you exceed your credit limit. It's important to read your card's terms and conditions to understand any potential fees.
Allie Simpson - Personal finance and insurance specialist
With almost 10 years’ experience writing, leading and managing content, Allie is an expert in personal finance and insurance products. She’s spent her career helping others quickly understand complicated topics, to help them save money and focus on what matters.
This article is written by a Compare the Market expert, backed by data and enhanced by AI. Find out how we ensure accuracy and quality in our Editorial Guidelines.
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