You probably know the feeling: the thrill of a big purchase or the temptation to swipe your card just one more time. But managing your credit card limit properly is about more than just saying “no” to the next sale.
Good habits give you control over your finances and help you avoid unnecessary stress. You’ll also build a healthy credit history without putting yourself in a tight spot.
Understanding credit card limits
The limit on your credit cards is essentially the cap on how much you can borrow from your card issuer. It’s set based on things like your income, credit score and how you’ve handled debt in the past. Think of it as your borrowing boundary – go over it, and you could face penalties or fees.
It’s important to keep in mind that just because you have a high limit doesn’t mean you should use it all. It’s tempting to go on a shopping spree when you’ve got that extra room, but borrowing too much can lead to high interest charges and could even harm your credit score.
Monitoring your spending and credit utilisation
Keeping an eye on how much you’re spending compared to your limit is key. Experts recommend using no more than 30% of your available credit. If your credit card has a £2,000 limit, for example, aim to keep your balance below £600 most of the time.
Using a higher proportion of your limit can signal to lenders that you’re relying too much on borrowed money. It’s all about balance – staying below that 30% threshold can actually help keep your credit score in good shape with a healthier utilisation ratio.
How to avoid going near your credit limit
Most of us have accidentally let spending spiral. But staying on top of things is easier than it sounds.
One simple way is to check your balance regularly. Many banks have apps that let you track your spending in real-time, so you’ll always know where you stand. If you’re getting close to your limit, stop and think for a moment. Is this next purchase really necessary?
A good habit is to set alerts on your account. These can notify you when you’re nearing a certain percentage of your credit limit. It’s an easy way to keep things in check before you hit the panic button.
Also, remember that making only the minimum payment doesn’t mean you’re free and clear. You might find that your balance barely moves if you’re only paying the minimum, meaning you’re still close to the limit and still paying interest.
So, try to pay off more than the minimum whenever possible to avoid getting stuck in a cycle of debt.
What to do if you want to change your credit limit
There may be times when you feel like your credit limit needs adjusting. Maybe you want more room to spend, or perhaps you think it’s too high. In either case, you can ask your bank to make these changes for you, but it’s important to know the implications.
Increasing your limit could give you more flexibility, but keep in mind that it might involve a credit check. A hard check can cause a temporary dip in your credit score. On the flip side, asking to lower your limit could help prevent you from overspending, though it may also impact your credit score by affecting your credit utilisation ratio – presuming you don’t reduce your outstanding balance at the same time.
The key here is to weigh your options. If you’re responsible with your spending, a higher limit might be a useful tool. But if you tend to get carried away, keeping your limit lower could help you stay on track.
