When you apply for a credit card, it’s important to consider the amount that the lender is willing to let you borrow - known as your credit limit.
Simply put, a credit limit is a spending cap lenders put on your account. The credit limit you’re offered could range from hundreds to thousands of pounds depending on the lender’s specific criteria.
Your personal circumstances, including your income and your credit history, also play a role in the credit limit you’ll be given.
When you apply for a credit card, you should work out what limit suits your needs. For example, do you want the card to make a big purchase with and spread the cost, or do you want one to keep for emergencies.
How much will I get?
Like we said, your circumstances will be assessed by the lender to determine the spending limit you’ll be given.
Although a specific credit limit and interest rate will be advertised by the lender, it doesn’t mean you’ll get that limit and rate. It all depends on the credit card provider and whether they think you’re a responsible borrower.
So if you’ve missed payments when you’ve borrowed in the past, you may find lenders offer you a smaller credit limit or a higher interest rate.
In the lenders’ eyes, by reducing your spending limit, the risk of you borrowing an amount that you can’t afford to pay back is removed.
The same goes for the interest rate. If you have a ‘bad’ credit history, you may still be accepted for the card. But the lender might offer it at a higher interest rate because of the risk you pose.
Can I spend over my credit limit?
If you spend over your credit limit, you’ll be issued with penalties by your lender, and you’ll also have to pay interest on top of the money you’ve borrowed. This will affect your credit history, which may affect your ability to borrow in the future.
Similarly, maxing out your credit cards in the past can look to potential lenders like you’re reliant on borrowing money. Lenders may conclude that you could struggle to make your repayments and as a result turn you down.
To make sure this doesn’t happen, you should always keep an eye on your current credit card balances. Again, you should only ever spend what you can afford to pay back.
It may be a good idea to start off with a low spending limit to see how well you can manage your money. After all, you can always ask your credit card provider to increase your limit if you’ve proven to be a responsible borrower.
Can my spending limit change?
Your credit limit can be flexible and you can ask for it to be increased. Of course, the lender’s decision will depend on your borrowing history and whether you’ve struggled or missed a past payment. But remember to keep in mind that a larger credit limit can tempt you to spend more.
If your limit does get extended, you don’t have to spend up to this amount. Just keep using it how you have been.
When you’re thinking of applying for a credit card, one of your most important considerations should be what you can afford each month. Don’t just get a credit card because of its credit limit. If you do, you may find yourself running into financial trouble in the future.
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