What is a credit limit?
A credit limit is the maximum amount of credit a lender authorizes a borrower to use on a credit card or line of credit. Exceeding a credit limit may result in penalties, fees or even canceled credit cards and lines of credit.
Learn how credit limits work, how they’re set by card issuers and what could happen if you exceed your credit card’s limit.
What you’ll learn:
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A credit limit is the amount of credit a lender grants on a credit card or other type of credit account.
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Lenders determine credit limits by examining credit history and financial information.
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You can typically only spend up to your credit limit until you repay some or all of your balance.
- Spending more than your credit limit could result in penalties, but Capital One doesn’t charge cardholders over-the-limit fees on credit card balances. View important rates and disclosures.
How do credit limits work?
A credit limit is the maximum amount of money a borrower or cardholder can charge on a revolving credit account. A credit card is maxed out when its limit is met or exceeded. Credit limits are often associated with credit cards, but they can also apply to other lines of credit.
Credit limits don’t stay the same forever. You may be able to request a credit limit increase. In some cases, lenders proactively adjust credit limits. That could mean an increase or a decrease, depending on the circumstances.
What’s the difference? Available credit vs. credit limit
While related, available credit and credit limits aren’t the same thing:
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Available credit: The remaining amount of credit you can use on a credit card or line of credit
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Credit limit: The maximum amount of credit a lender allows a borrower to use
Transactions, including balance transfers, cash advances, fees and interest charges, can reduce your available credit but not your credit limit.
How are credit limits determined?
Lenders typically determine your credit limit by reviewing information from your credit report and other factors, which might include:
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Payment history: Do you pay your bills on time, including monthly credit card bills? Have you ever filed for bankruptcy or had a debt sent to collections?
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Current accounts: How many accounts do you have open? And what kinds of loans do you have open? Do you sustain high balances across your existing credit cards?
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Account history: How long have you had your current accounts? Have you applied for a lot of new credit recently?
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Credit card debt: How much do you owe? How much credit are you using? How much do you have available?
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Income: Do you make enough money to cover your monthly bills?
- Debt-to-income (DTI) ratio: What do your monthly debt payments look like compared to your monthly gross income?
Do credit limits affect credit scores?
Your credit limit plays a role in your credit utilization ratio. That’s the percentage of available credit you’re using across your revolving accounts. Credit utilization is one factor that can affect your credit scores.
The Consumer Financial Protection Bureau (CFPB) suggests keeping your utilization below 30%. For example, that means using less than $3,000 of a $10,000 limit. Paying off your cards in full and on time each month can help keep that number low and may help you build your credit scores over time.
What happens if you go over your credit limit?
Spending more than your credit limit may result in declined transactions, fees or higher interest rates. Lenders can only charge over-the-limit fees if you participate in their over-limit coverage program. But they may approve or decline transactions that exceed your credit limit regardless of your enrollment status.
Even if you aren’t enrolled, an over-the-limit charge may still be approved. But the lender can’t impose an over-the-limit fee. If you have opted into an over-the-limit coverage program, lenders can charge one fee per billing cycle and no more than three fees for the same transaction.
Contact your credit card issuer if you’re unsure of your program enrollment.
Capital One doesn’t charge over-the-limit fees. View important rates and disclosures. And eligible cardholders can sign in online to check whether their purchases might be approved if they exceed their credit limit. They can also disable the ability to spend over your credit limit in your over-limit preferences.
Credit limit FAQ
Check out these answers to some commonly asked questions about credit limits.
Can my credit card limit change?
Your credit limit can change. You may be able to request a credit limit increase. And sometimes, lenders proactively adjust credit limits based on credit scores, income and account activity.
How can I raise my credit card limit?
If you’ve been using your credit card responsibly and think you could benefit from more spending power, you can request a credit limit increase. Depending on the lender, you might do this online, through an app or by phone.
What are some tips for managing credit limits?
Your credit limit represents your purchasing power. How you manage it may affect your credit scores. Here are a few ways to stay on track:
- Avoid maxing out your card. The CFPB recommends keeping your credit utilization below 30%.
- Pay your credit card bill on time and in full each month. If you’re unable to pay your card in full, the CFPB says it’s important to at least make your minimum payment on time. This can help you avoid late fees and help keep your account in good standing.
- Understand policies before requesting a credit limit increase: Some issuers limit how often you can request increases. And some might use hard inquiries to evaluate requests. If that’s the case, requesting a larger credit limit could temporarily hurt your credit scores. Capital One uses soft inquiries, which don’t affect credit scores.
- Check your credit reports. You can get free copies from each of the three major credit bureaus through AnnualCreditReport.com. You can also use CreditWise from Capital One to access your credit report and credit score without hurting your scores. CreditWise is free for everyone, even if you’re not a Capital One cardholder.
Key takeaways: Understanding credit limits
Your credit limit is the maximum amount you can borrow on a credit card or line of credit. Lenders typically determine credit limits based on factors like your credit and payment history. Going over your credit limit may result in fees or other consequences. But some credit card issuers, like Capital One, generally don’t charge over-the-limit penalties. View important rates and disclosures.
If you’re looking for a new credit card, Capital One can help.
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See if you’re pre-approved for credit cards without harming your credit scores.
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If you’re looking to build your credit with responsible use, explore cards for people with fair credit.
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Earn unlimited 1.5% cash back on every purchase, every day with a cash back rewards card.
- Monitor your credit report and score with CreditWise. It’s free for everyone, and using it won’t hurt your credit scores.
