Credit Limits Explained – What They Are and Why They Matter

If you’ve ever looked at a credit‑card statement, you’ve seen a number called the credit limit. It’s simply the maximum amount the bank will let you borrow on that card. Knowing this figure matters because it influences how much you can spend, how your credit score is calculated, and whether you stay financially comfortable.

How Credit Limits Are Set

When you apply for a card, the lender checks your income, credit history, and existing debts. Based on that data they decide a limit they think you can handle. New borrowers often start with a modest limit—say £500 or £1,000—while people with long‑standing good credit can see limits of £5,000, £10,000, or more. The limit isn’t set in stone; banks review it regularly and can raise or lower it depending on your usage patterns.

Credit Utilization and Your Score

One of the biggest ways a credit limit impacts your credit score is through utilization. Utilization is the percentage of your total available credit that you’re actually using. Keep it below 30 % if you want a healthy score. For example, if you have a £4,000 limit and you carry a £1,000 balance, your utilization is 25 %—which is generally fine. High utilization tells lenders you might be over‑extended, and your score can drop.

Tip: If you have multiple cards, add up all limits and all balances to get your overall utilization. Paying down one balance can improve the ratio across the board.

Practical Ways to Manage Your Limit

1. **Pay on time and in full** – Consistent, on‑time payments show the bank you’re trustworthy and often lead to automatic limit increases.

2. **Ask for a raise** – After six months of good behavior, call your issuer and request a higher limit. Most banks will ask a few quick questions and may grant the raise instantly.

3. **Spread purchases** – Use a few different cards for different expenses. This keeps the balance on each card low, which helps utilization.

4. **Set alerts** – Most banks let you set a low‑balance alert. When you’re within 20 % of the limit, the alert reminds you to slow down.

When to Reduce a Credit Limit

Sometimes a high limit can be tempting, leading to overspending. If you’re trying to tighten your budget, you can request a lower limit. It won’t hurt your score as long as you keep utilization low. Also, if you no longer need a card—perhaps you’ve gotten a better one—closing it after paying it off can simplify your finances.

Common Pitfalls to Avoid

• **Maxing out** – Hitting the limit triggers over‑limit fees and spikes utilization, hurting your score.

• **Ignoring fees** – Some cards charge a fee if you exceed the limit, even for a single day.

• **Only one card** – Relying on a single card means any large purchase could push you over the 30 % mark quickly.

By keeping an eye on your limit, paying balances down regularly, and asking for increases when appropriate, you can turn your credit limit into a tool that supports, not sabotages, your financial goals.