What does the credit card credit limit mean?

By   |   Verified by David Boyd   |   Updated 30 Nov 2022

A credit card limit is the maximum amount of money you can spend on your credit card in a given statement period. This limit is set by your credit card issuer and is based on your creditworthiness. Your credit card limit may be raised or lowered if your creditworthiness changes.

What is a good credit limit?

There is no one-size-fits-all answer to this question. Your ideal credit limit will depend on your spending habits and financial goals. However, keeping your credit limit lower than your monthly income is important since this will help you avoid getting into debt while leaving you with some buffer room in case of unexpected expenses.

What happens if I exceed my credit limit?

Your credit card issuer may charge you a fee if you exceed your credit limit. Additionally, your credit score may be negatively impacted since the bank may report you being over your credit limit to credit bureaus. Therefore, staying below your credit limit is important to avoid financial penalties and protect your credit score.

Is the credit limit monthly or yearly?

Banks set credit card credit limits on a monthly basis.

  • If your credit limit was $1,000, you could spend up to $1,000 that month.
  • If you paid off $500 and carried $500 into the following month, you would have $500 credit available to spend.

Minimum vs maximum credit limit

It's quite normal for a credit card to have a minimum credit limit. Generally, it is the same amount for anyone approved for the credit card.

The maximum credit limit specifies the highest amount of money that can be spent on the credit card. The credit card issuer determines the maximum credit limit during the decision process. Factors that can affect the maximum credit limit extended to you include your income, credit report, and other outstanding debts. It is possible to request a higher credit limit in the future.

Does your credit card limit matter?

Your credit limit can impact your financial life in several ways.

  • It can affect your credit score. Using a small amount of your available credit can help your credit score.
  • It can impact your ability to make large purchases. If your maximum credit limit is low, you may not be able to make a single large payment. You may need to pay the balance down during the statement period to keep using it without unwittingly going over the maximum credit limit.
  • It can impact your ability to get approved for new lines of credit. Lenders consider a high maximum credit limit riskier since you may use it and then be unable to service your repayments.