How do credit card limits work?

What is a credit limit?

A credit limit is the maximum amount you can borrow on a credit card. It’s effectively the most money you can have outstanding on a card at any one time.

Lenders, like credit card providers, need to ensure they’re lending to you responsibly and that you can pay back what you borrow. So, they give you a credit limit based on what they think you can afford to repay.

How is your credit limit calculated?

When you apply for a card, a provider will assess your financial situation using the information you provide as part of your application, along with details on your credit report and anything it already knows about you as an existing customer. These factors determine whether it’s willing to offer you a credit card and, if so, what the credit limit will be.

Find out more about how to get accepted for a credit card.

Factors credit card providers take into account when setting your credit limit include:

• Your income

• Your monthly expenses

• How much debt you already have, such as outstanding amounts on mortgages and personal loans

• How much credit you have available elsewhere, like other credit cards

• Your repayment history

• Their lending policy at the time

What happens if you go over your credit limit?

If you exceed your credit limit, your transaction may be declined. Otherwise, you’ll usually have to pay a fee for going over your limit, which could harm your credit score and affect your ability to get credit in the future. If it keeps happening, your credit limit could be reduced and the provider may ask you to pay off the credit card so it can close your account. You could also lose any promotional rates you were on.

It’s important to take note of how much your credit limit is so you don’t exceed it. You’ll be able to see what it is in your online account, in the information you get when you receive your credit card and on your credit card statement.

How much can you borrow on a credit card?

The average credit card limit in the UK is £5,610, according to the latest data from analytics software company FICO, but how much you can borrow on a credit card will depend on your financial circumstances and history. The riskier the provider thinks you are as a borrower, the lower your credit limit will be. The level of risk the provider is prepared to accept at the time you make your application will also have an impact.

When you first take out a credit card, your credit limit is likely to be at the lower end of the scale. Once you prove that you’re a reliable borrower, you can usually borrow more. The longer you have a credit card without missing any payments, the higher the credit limit you’re likely to be offered.

Credit limits start at £200 to £1,500 on credit cards for people with bad credit or no credit history and they tend to have higher interest rates, too. Your credit limit may increase as your credit score improves, and you may become eligible to apply for a credit card aimed at individuals with a good credit history, which generally have a higher credit limit.

Find out more about credit cards for people with bad credit or with no credit history.

How credit limits affect your credit score

Credit limits affect your credit score depending on how different lenders perceive them when they assess you. In some cases, lenders might consider you as highly reliant on credit, while other lenders may take the view that other lenders trust you to borrow significant sums.

The amount of credit you have available isn’t their only consideration, though. Having a large amount of potential debt showing on your credit report is more likely to be viewed negatively if you’re using all of it each month.

How much of your credit card limit should you use?

If you’re only using a small proportion of your available credit, this shows that you don’t need to borrow all the money you have access to and have the discipline not to, which means credit providers see you in a good light. And provided you make all your repayments on time, borrowing some money is deemed better than borrowing none because you’re showing that you can borrow money and pay it back.

According to credit reference agency Experian, you should aim to use no more than 25% of your credit limit each month. 

If you need to reduce the percentage you’re borrowing, you can do this by either borrowing less or getting a higher credit limit so the amount you’re borrowing is a smaller percentage of it. This could mean taking out a new credit card – but make sure you don’t apply for lots of credit in a short space of time because this could hurt your credit score.