Put simply, a credit limit shows how much you can borrow on a credit card. The easiest way to think about this is the maximum amount available to you on a credit card.
Understanding your credit limit is important when it comes to managing the credit you have. In our guide we’ll cover how your credit limit is created, what happens if you go beyond your credit limit and changing your credit limit.
This guide aims to provide general information. To see our specific process for credit limits, read our ‘Your Credit Limit’ page.
Your credit limit
When it comes to your credit limit, you should think about these three different amounts:
This is the maximum amount available to use on your credit card.
Credit card balance
This amount shows how much you have spent on your credit card at a point in time.
If you take away your current credit card balance from your credit limit, the amount left is your available balance. This amount shows what you have left available.
Let's take a look at a 'real' example:
Credit limit: £500
Credit card balance: £130
Available balance: £370 (£500 minus £130)
How your credit limit is determined
Your credit card provider will determine your credit card limit when you complete an application or ask for a lending decision. Sometimes this can be as a result of an eligibility check.
There are a number of things which your lender will consider. Each of these help the lender to decide on an appropriate credit limit for your card. This includes things like:
- How much credit you are currently borrowing (or the total amount of debt you have).
- How many credit accounts you have - This could be other credit cards or loans.
- Your income and expenditure - Or to put it another way, how much income you have coming in and your monthly outgoings.
- Your payment history - This shows any missed or late payments you have on credit agreements and how you have managed them over time.
This is looked at along with your credit score and your overall credit report when a lender decides on a credit limit.
What happens if you go over your credit limit
Going over your agreed credit limit is not recommended. In some cases trying to make a payment that will cause your spending to go over your limit might be rejected by your lender.
Even if the payment does go through, you could be charged a fee by the provider. If you repeatedly go over your limit, your lender may decide to lower your limit altogether and your credit score could be affected.
If you think you’re going to go over your credit limit, a good first step is to contact your credit card provider straight away. They will look at how you have managed your credit card and may be able to increase your credit limit.
It’s always best to make sure you have enough available balance on your credit card to pay at least the minimum payment.
Credit limit increases for Vanquis credit card customers
You can’t request an increase, but we’ll let you know when you’re eligible in the app, via SMS or email.
We check your eligibility every month once you’ve been a customer with us for more than 4 months. If you’ve recently had an increase, you won’t be eligible for another 4 months.
Changing your credit limit
Your credit card credit limit can be changed after you first get your card. This could be either a credit limit increase or a decrease if you find your circumstances change.
For both an increase or decrease, you need to speak to your credit card provider and make a request to change your credit limit. If you are asking for an increase, your card provider will look at your payment history and how you have managed your card usage. They will then make a decision on whether or not a credit limit increase is right for you. You should make sure the increase is affordable and that you will be able to make the repayments. With a credit limit decrease, you might decide this is a good idea as it will reduce the amount of unused credit you have. This might help when it comes to applying for other credit products like loans and mortgages.
Does a credit limit increase impact your credit score?
Credit limit on it’s own doesn’t necessarily impact your credit score. Instead, credit reference agencies will look at how you are using your credit. If you have a high credit limit but haven’t used much of this and have a low balance, this can show lenders that you can manage your credit well. This is sometimes known as credit utilisation. If you have a high credit limit but this is all or mostly used up and you are only making the minimum payment every month, this could show that you’re not able to manage your credit and therefore your score could be affected. If you can maintain a low balance, even if you have a good credit limit, and make your payments on time, this can help to improve your credit score.
What if a credit limit increase is declined?
If your card provider turns down your request for a credit limit increase, there could be a number of reasons. Your provider will look at the information they already hold on you from credit reference agencies. They will also look at how you have managed your credit card, whether you have missed any payments and how much your repayments are.
If you have already reached your maximum limit and are only making your minimum payment each month, your lender might decide that they don’t think you would be able to manage with an increased debt and potentially higher payments.
It’s a good idea to check your credit score before you request a credit limit increase. If your score is low, this is a good clue that you might be turned down for a credit limit increase. Your card provider might view a low score to mean that you are a credit risk and might not manage with a higher limit.
The Do’s and Don’ts of credit limits
To summarise, here’s some things to look into when it comes to credit limits:
- Contact your card provider if you think you might go over your limit.
- Try to get a credit limit you can manage.
- Limit your requests for a credit limit increase and make sure these are suitable for your circumstances.
- Get used to your credit card and how to manage it effectively before considering an increase.
- Go over your credit limit.
- Use too much of your available credit.
- Ask for a credit limit increase too soon after obtaining a new credit card.