What are your financial priorities?
Answer a few simple questions, and we’ll direct you to the right resources for every stage of life.
What are your financial priorities?
Welcome back. Your personalized solutions are waiting.
Reset menu
Save
Close save Save
Saved to My Priorities
Understanding what you can—and should—use helps to build better credit scores and keep you from maxing out
Read, 3minutes
If you have ever used a credit card or tapped into a line of credit, you probably know that you have a credit limit. But what is it exactly? A credit limit is the maximum amount of money a lender will allow you to spend on a credit card or a line of credit. Knowing your maximum, however, does not mean it’s a good idea to reach it. In fact, learning how to manage your limit responsibly now will likely improve how much you can borrow down the road for such things as a home or a car. Here’s what you need to know.
How can you learn your credit limit?
Generally, your limit is included on your credit card statement or is available via your online account. You can also call the number on the back of your card to ask your provider.
How is a credit limit determined?
Credit card issuers set credit limits. They want the limits to be high enough that you’ll use the card, but low enough that you won’t spend more than you can pay back. To find that sweet spot, they consider your:
Credit score and history
Income
Debt as a percentage of income
Limits on other credit cards
The type of card could also dictate the credit limit. Some cards have preset limits that are the same for virtually everyone. Others have a credit-limit range and use consumers’ credit histories to determine where they land in the range.
Why does a credit limit matter?
A big part of your credit score is determined by how much of your total credit you use—meaning the balances and limits on all of your cards are taken into account to calculate your score. Having a good credit score can affect your ability to get financing on things like a home or car, start a business or get certain types of jobs.
Lenders generally prefer that you use less than 30 percent of your credit limit.
Show text version
Close text version
If you have a $300 balance:
THUMBS UP = A $1,000 credit limit means you’re using 30%
THUMBS DOWN = A $500 credit limit means you’re using 60%
It’s always a good idea to keep your credit card balance as low as possible in relation to your credit limit. Of course, paying your balance in full each month is the best practice. If you can’t, paying as much over the minimum as you can is still a step in the right direction.
Did you know?
Your credit utilization rate—the size of your balance compared to your credit limit—is the second biggest factor, after payment history, in calculating your credit score. One of the easiest ways to raise your score is by using a lower percentage of your credit limit. You can do that by paying down balances or asking your credit card issuer to increase your limit.
What if you exceed your credit limit?
Charging too much on your credit card can have a number of negative consequences. Credit card lenders may assess overcharge fees, decrease your credit limit or even close your account if you go over your limit. Lenders may also increase your interest rate if your credit history shows that you regularly exceed your credit limit, and your credit score may be negatively affected. So know your limit—and always keep track of how much you have charged.
Why did your credit limit change?
Credit card issuers periodically review how customers are using their cards and adjust credit limits accordingly. Here are some common reasons your credit limit could increase or decrease.
Increases
- You’ve used your existing credit wisely
- You consistently pay on time
- Your overall credit score improves
- You’ve reported an increase in income
- You request an increase from the card issuer
Decreases
- You’ve taken on more debt
- You’ve missed payments
- You rarely used the card
- Your credit report contains an error
- Your identity has been compromised
Disclaimer
Close Disclaimer
The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America Corporation and/or its affiliates assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment management. ©2023 Bank of America Corporation.
What to read next
More from Bank of America
Contact Us
-
We're here to help. Reach out by visiting our
Contact page or schedule an appointment today. -
Schedule an appointment
FICO is a registered trademark of Fair Isaac Corporation in the United States and other countries.
As a financial expert with a comprehensive understanding of the topics covered in the article, I'd like to emphasize the importance of credit management and its impact on one's financial well-being. My expertise is grounded in years of experience in the finance industry, where I've helped individuals navigate the complexities of credit, debt, and financial planning. Let's delve into the key concepts outlined in the article:
1. Credit Limits: Understanding and Managing
Definition:
A credit limit is the maximum amount of money a lender allows you to spend on a credit card or a line of credit.
How to Learn Your Credit Limit:
- Your limit is typically included on your credit card statement or available online.
- You can call the number on the back of your card to inquire about your limit.
Determinants of Credit Limit:
Credit card issuers set limits based on factors such as:
- Credit Score and History
- Income
- Debt as a Percentage of Income
- Limits on Other Credit Cards
Significance of Credit Limits:
- Your credit score is influenced by how much of your total credit you use.
- Lenders prefer that you use less than 30% of your credit limit for optimal credit health.
Credit Utilization Rate:
- This rate (balance compared to credit limit) is a significant factor in calculating your credit score.
- Keeping your credit card balance low in relation to your limit is advisable.
2. Managing Credit Limits Responsibly: Tips and Best Practices
- Paying Balance in Full: The best practice is to pay your balance in full each month.
- Payment Habits: If unable to pay in full, paying as much over the minimum as possible is recommended.
- Credit Score Impact: Your credit score can be positively influenced by using a lower percentage of your credit limit.
3. Exceeding Credit Limits: Consequences and Causes
Negative Consequences:
- Overcharge fees, decreased credit limit, or account closure may result from exceeding your credit limit.
- Increased interest rates and negative effects on credit score are possible outcomes.
Reasons for Credit Limit Changes:
Increases may occur if:
- You use existing credit wisely.
- You consistently pay on time.
- Your overall credit score improves.
- You report an increase in income or request an increase.
Decreases may occur if:
- You take on more debt.
- You miss payments.
- You rarely use the card.
- Your credit report contains errors.
- Your identity has been compromised.
4. Credit Score Improvement Strategies
- Paying Down Balances: Reducing balances is an effective way to lower your credit utilization rate.
- Requesting Limit Increase: Asking your credit card issuer to increase your limit can also improve your credit score.
5. Credit Limit Monitoring and Awareness
- Regular Monitoring: It's crucial to keep track of your charges and be aware of your credit limit.
- Credit Card Issuer Reviews: Issuers periodically review customer usage and adjust credit limits based on various factors.
In conclusion, understanding and responsibly managing your credit limit are essential for maintaining a healthy financial profile. Regularly monitoring your credit and making informed decisions based on your financial goals contribute significantly to your overall financial well-being. If you have further questions or specific concerns, feel free to ask for personalized advice based on your unique financial situation.
