How Is My Credit Limit Determined?

A credit limit is the maximum amount that you can charge on your credit card. Credit card companies set your limit when you apply for a card by considering several factors. For starters, they’ll look at your credit score, which is a number that represents your entire credit history. The scoring system analyzes how you’ve repaid loans in the past and predicts your ability to pay back future loans. Companies also will look at your income, debt levels and repayment history. Another factor that comes into play is how much other outstanding credit you have available to you, such as through other credit cards.

Your credit limit may increase over time as you build a steady track record of paying your bills each month. Make sure that you keep your total charges well within your credit limit. Why? Your credit score may be affected if your balance is above the credit limit because it signals to creditors that you may be having financial difficulties and thus are a riskier borrower. Some credit card companies, however, offer electronic and/or mobile reminders to let you know when you’re nearing your limit.

Your credit card company may raise your credit limit without you requesting them to do so. However, you may have to call your company’s customer service number to ask them for an increase. If you have a history of paying your bills on time, a credit card company is more likely to raise your limit to accommodate you, though the increase may be small. This may help you avoid overextending yourself financially.

But just as credit card companies may increase your credit limit if you consistently pay your balance on time, they may also decrease your limit if you fall behind or start charging significantly more than usual. In some cases, going over your credit limit may cost you a fee. However, the Credit Card Accountability Responsibility and Disclosure (CARD) Act, now places restrictions on how credit card companies can charge fees for going over your credit limit. One of the provisions under the new law states that card issuers can only charge overlimit fees if you have given prior authorization to allow purchases over your credit limit. Discover is one of two major card companies that has decided to eliminate overlimit fees altogether.

If you are not sure of your credit limit, check your monthly statement or call your card company’s toll-free customer service number. You could also log on to your account through your card company’s web site.

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