If you are thinking of getting a credit card then a bit more info on how credit card limit works is just what you need to ensure you don't incur further or unnecessary charges.Staying below your limit is also good as it helps boost your credit score.
So what is a credit card limit?
Your credit limit is the maximum you are allowed to owe on your credit card . Most credit cards will allow you to go over this limit for a charge but they will typically not warn you prior.
Once you go over your credit limit your credit card provider will not allow you to spend anymore until you pay of the minimum repayment on your credit card.
So How does your credit card provider work out your credit limit?
Most credit card providers will work out your credit card limits in different ways but here are a few methods they use.
Through your credit score: credit card providers all have their different risk based scoring.This can take into account very different factors on your credit file such as your repayment history, any negative marks such as CCJS, Bankruptcies etc.
If you have had a credit card before they will look at your previous credit limit
Credit providers will look at your affordability, how much do you make per month, what's your net disposable income?
The credit card provider will look at what other financial commitments you have on your credit file such as utilities, other credit commitments such as mortgages etc
You can find the credit card limit on your current card
by looking at your online account,
Looking at any recent paperwork or
calling your credit card provider.
How to increase your credit card limit?
You can increase your credit card limit by
Applying for an increase online
Calling your credit card provider over the phone or
By writing to your credit card provider
When you apply to increase your credit card limit your credit card provider will have to look at your affordability and creditworthiness again. This means the credit card provide will do a credit check on you again. You must ensure your credit file and affordability are on track to ensure you will qualify for an increased credit limit.
You can improve your credit score before applying by checking your score and then looking at various credit hacks to improve it.
A higher credit limit will of course mean much responsibility and you should be careful as you can easily get into debts quickly.
You can also reduce your credit limit:
You can simply do this by calling, writing or logging into your online account. Reducing your credit limit will ensure you don't overspend and get caught in the debt trap for many months.
It is worth noting that your credit card provider can change your credit card limit without informing you. They can do this if you miss a repayment, if your creditworthiness drops down or if their risk rating increase.
How do credit limits affect balance transfers?
You can transfer your credit card balance to a balance transfer credit card but there are some restrictions. However the maximum you can move over to your balance transfer credit card is the credit limit on your balance transfer credit card.
Example, if your new credit card limit is £5000 and your credit card provider allows you to use 50% of that for a balance transfer that means you can only move over £2500 from your old credit card.