Takeaways
- Credit limit is the total amount a credit lender is willing to let you borrow.
- Lenders set your credit limit by analyzing your credit history, income, and finances.
- Increasing your credit limit can improve your credit utilization and credit score.
- Revolving credit products like credit cards and lines of credit have credit limits.
- Available credit is the difference between your outstanding balance and your credit limit.
You might have just spent weeks shopping for the perfect credit card. Suddenly, you find yourself approved for the perfect card up to a specified credit limit.
Once the virtual confetti settles, you can use your credit card immediately. You can swipe it to pay for everyday items, link it to your mobile app payments, or use it for essential online shopping. Before you get too far ahead of yourself, you should know your card’s credit limit.
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What Is Credit Limit?
Your credit limit is the maximum amount a credit lender authorizes you to use on your credit card or line of credit. When you apply for a credit card, you are asked a series of questions about your income level, credit history, and other debts. With this data, credit card issuers run their proprietary calculations to determine the total amount you should be allowed to borrow. This is known as your credit limit.
Read More: 7 Surprising Reasons You Should Use Your Credit Card
How a Credit Limit Works
A credit limit is the total amount of credit a lender will let you borrow. Revolving credit products like credit cards and personal lines of credit have credit limits. Lenders set your limits based on a range of factors, including your credit score, income, and debt-to-income.
Credit limits are not only reserved for unsecured credit but also apply to secured credit. Secured credit is backed by collateral and can have credit limits that exceed the value of the collateral.
Credit limits work almost universally in the same way among credit products. You can spend up to your credit limit, but you may incur fees or penalties for spending above it. These fees will show up on your monthly credit card statement.
Generally speaking, higher credit limits are usually given to low-risk credit applicants. Lower credit limits are given to credit cardholders with low credit scores and poor credit history. You can actively work to increase your credit limit over time.
Where to Find Your Credit Limit
Once you receive your new credit card, you can look at your online account or monthly credit card statement.
- Online: Your approved credit limit is usually housed with other important credit card information. To see this information, log in to your account or mobile app. You can see your current credit limit, available credit, and remaining statement balance. In addition to these details, you can also see your accrued reward points and any scheduled automatic payments.
- Credit Card Statement: You can download a copy of your credit card statement from your online portal or receive a copy by mail. Your statement will show a comprehensive view of your credit account, including your credit limit.
Smart Tip:
Spending up to your credit limit can damage your credit score. FICO and VantageScore credit scores assess your credit utilization, which is the amount of credit you use relative to your available credit.
How Credit Limits Are Determined
Credit card companies analyze a variety of variables to determine your credit limit. Here are the factors they consider:
- Income: Lenders want to ensure you can repay your approved credit limits. High-income earners are often approved for higher credit limits and better rewards credit cards.
- Payment History: Part of what makes a great credit customer is the ability to make your payments on time and in full. Credit lenders want to see a predictable pattern of consistent payments.
- Open Accounts: Do you have multiple credit cards or lines of credit? Lenders view the amount they approve for your account in the context of other credit limits. Approving too much, especially for a new credit card user, can backfire on lenders.
- Length of Account History: A history of credit lines helps your application. Multiple years of sustained on-time credit card payments increase your chances of getting approved for higher limits.
- Outstanding Credit Card Balance: Your outstanding balance, or how much debt you currently have, can impact your credit limit. Balances that are too high might give lenders pause and cause them to approve you for lower amounts.
- Debt-to-Income Ratio: This can become an issue if your monthly credit card balances are too high. Credit card companies look at your monthly debts relative to your income. A low DTI is indicative of healthy personal finances.
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How Credit Limit Impacts Your Credit Score
Your credit limit impacts your credit score by affecting your credit utilization, which is the percentage of your available credit you are using. High credit utilization has a detrimental impact on your credit score.
Getting approved for a high credit limit and using a small amount of your available credit is a smart move. Because of this, personal finance experts evangelize adhering to the 30% Rule.
Plug and Play: Smart Money's Credit Utilization Calculator
Smart Tip:
High credit limits can lead to overspending. If you apply to increase your credit limit, make sure to pay your minimum credit card payments and keep your debts low.
Can Your Credit Limit Decrease?
Credit card issuers generally have the right to increase or decrease your credit limit.[1] If you are making on-time payments, lenders can increase your credit limit or invite you to apply to boost it. Alternatively, lenders can decrease your credit limit if you maximize your credit limit on revolving lines of credit.
With thoughtful financial planning and budgeting, you should be able to manage your monthly credit card bills. By consistently paying your bills on time and not maxing out your cards, you can avoid having your credit limit decreased. If you are trying to turn your finances around and need a grace period, you can always call your credit card company.
Smart Summary
A credit limit is the maximum amount a lender authorizes you to spend with a revolving credit product. When you apply for credit cards or personal lines of credit, you will be assigned your initial credit limit. From there, you can increase your credit limit by making on-time payments and demonstrating good credit card management. Higher limits give you access to more capital and let you finance large purchases.
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(1) Consumer Financial Protection Bureau. Can my credit card issuer reduce my credit limit? Last Accessed April 16, 2025.
