A credit limit is the maximum amount you can spend on a credit card or line of credit at a given time. Your credit limit is based on various factors, such as your income and existing debt. If you reach your limit, your issuer may decline transactions or charge you a fee.
Let’s examine how credit card limits work, where to find them and how they may change over time.
How is your credit limit determined?
Many factors go into determining a credit limit. For example, credit card issuers may consider:
- DTI (debt-to-income) ratio: This is the amount of your pre-tax income that goes toward debt. In general, a lower DTI might make it easier to qualify for a higher credit limit.
- Credit score and history: A higher credit score may translate to a higher credit limit.
- Income: A higher income can signal that you’re in a good place to afford additional credit, leading to a higher credit limit — and vice versa.
- Pre-existing relationship with the issuer: Your payment history with a creditor, as well as how much credit that company has already given you access to, may help shape your credit limit on a new card.
- Current economic conditions: Some issuers may lower their credit limit offerings during economic cooldowns.
What if you exceed your credit limit?
There are 2 common outcomes for exceeding your credit card limit:
- New transactions may be declined, so you wouldn’t be able to use that card until you’ve paid down your balance
- Your credit card issuer may allow the transaction to go through but charge you an overlimit fee. This can only happen if you’ve opted in to permit the card issuer to allow charges over your card limit.
If you opt in to allow overlimit transactions, keep in mind that your credit card minimum payment may increase by the amount you've exceeded your limit. Another consideration is your credit score. For example, going over your limit can increase your credit utilization (the amount of credit you’re using). A higher credit utilization may negatively impact your credit score.
These consequences can vary based on the credit card issuer. Checking the terms of your credit card agreement can help you understand the consequences of going over your limit.
Can your credit limit change?
Your credit limit is not set in stone. There are 2 ways your credit card limit may change:
- Automatic changes: If you use your card responsibly, such as paying off your full balance and not carrying debt, increase your income or improve your credit score, your issuer may increase your credit limit automatically. On the flip side, issues like missed payment deadlines, credit score drops or credit utilization increases may cause your issuer to lower your credit limit.
- Credit limit requests: You can contact your creditor to request a credit limit increase. You may be more likely to be approved if your account is in good standing, you have a positive payment history or your income has increased.
