Credit limits: how much credit limit should you have?

For example, if your credit card has a credit limit of £3,000, and your balance stands at £2,000, then you have a remaining £1,000 to spend on it. If you go over that limit, you’ll usually have to face penalty charges and won’t be able to spend on the card until the balance has been reduced.

When you apply for a credit card, the provider will let you know the credit limit. They decide how much to offer by looking at various factors, such as your application form, information from your credit report and the provider’s own data (e.g. if you’re already a customer). The information they consider typically includes:

• Your credit history – e.g. if you’ve been a reliable borrower previously, have a record of missed or late payments, or if you’ve never borrowed before
• Your available income – how much money you have left after paying living costs (e.g. bills, rent, groceries)
• Your existing credit commitments – e.g. debt on other credit cards, loans, mortgages or overdrafts
• Your credit limits elsewhere – how much you can borrow on your other cards, if you have any
• Their own lending policy – credit limits can vary between card providers and different deals

Not everyone has access to the same credit card deals, and a premium card will usually have a higher credit limit than a credit builder credit card (for someone with a low credit score), simply because the lender believes they’re likely to repay a higher amount. So, a good credit card limit is one that strikes a sensible balance between your needs and your financial ability. Always remember that money spent on a credit card is borrowed, and you must pay it back.

You don’t have one, universal score – each lender may use a different method to calculate it. So, how credit limits affect your score depends on the lender’s preference. For example, a large amount of available credit may make lenders think you’re too reliant on borrowing – they may even see it as potential debt. On the other hand, some lenders may view high limits in a positive light, as it shows that another lender trusts you to repay a large amount.

Lenders may also take into account what proportion of your ‘revolving’ credit (usually credit and store cards) you’re regularly using. For example, if you’re maxing out your credit card limit each month, this may count against you.

Generally speaking, it may be helpful to have a reasonably high credit limit, but using a relatively low percentage of it. This often looks best to lenders, as it shows you can borrow credit, but you’re not heavily reliant on it.

So, for a healthy credit score, try to use no more than 25% of your credit limit each month. You can do this by spending less on your card, or getting a higher limit. For example, if you shifted a balance of £1000 from a card with a limit of £2000, to a new card with a £4000 limit, the amount you’re using would change from 50% of your limit to 25%. Remember, you should only borrow as much as you can comfortably afford to repay.

Managing credit responsibly can help you build up a good credit score, and as your lender sees you pay off your credit card successfully, your chances of increasing your credit limit may improve.

The longer you stick to the agreed payments, the more reliable a borrower you’ll look. After a few months, assuming you’ve kept up with the repayments and managed other credit well, you could ask your lender to increase your limit - or they might offer it to you to encourage you to use it more.