Credit Limit Definition
By LaToya Irby. Credit/Debt Management Expert
Welcome to About.com s Credit/Debt Management site, led by your guide, LaToya Irby. LaToya has been the credit and debt management guide since 2007. Read more
One of the most important things to know about your credit card is your credit limit. The credit limit on your credit card is the maximum amount that can be borrowed on a credit card without penalty.
How Much Will Your Credit Limit Be?
You won t know what your credit limit will be until you ve completed your application and are approved for the credit card. If you re (reasonably) unhappy with the credit limit you ve received, you can request a bigger one or turn down the credit card.
Your credit limit may not stay the same the entire time you have the credit card. If you use your credit card wisely and make your monthly payments on time, you can be approved for periodic credit limit increases, sometimes without having to request a credit limit increase .
Similarly, your credit limit can be decreased if your payment habits fall behind or your debt increases to a level that your credit card issuer deems risky.
How Much of Your Credit Limit Can You Use?
You can make purchases all the way up to your credit limit, but you may not be able to go over your credit limit if you haven t opted-in to having over limit transactions processed. Exceeding your credit limit may result in an over the limit fee and your credit card issuer might also raise your interest rate to the default rate if you go over your credit limit.
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Refer to your credit card agreement to see if there are any penalties for going over your credit limit.
Exceeding your credit limit and even getting close to it impacts your credit score. Your credit utilization measures the amount of your credit limit that s being used and counts 30% of your credit score. The higher your credit card balance, the higher your credit utilization and the more your credit score is hurt. It s best to keep your credit card balances within 10% to 30% of your credit limit.