Credit cards could be convenient tools for borrowing money and making purchases, and they may even offer you interest-free grace periods and promotional APR offers for up to a year or more on new purchases, balance transfers or both.
Sometimes, though, particularly when credit cards are issued to members of the same household, managing all the common cardmembers' purchases can get complicated. This is why setting up a limit on daily, weekly or monthly credit card spending could prove beneficial in maintaining a household budget.
What is a credit card limit
A credit limit—also known as a credit card access line—is the maximum amount that can be charged to your card. Exceeding your credit card limit can result in a fee being added to your monthly statement. To “max out” a card means reaching your credit limit.
Exceeding your credit card limit can result not only in an added fee, but in a higher penalty APR being assessed to your card account. It can also impact your credit utilization ratio. This is why it's generally best avoided and setting up voluntary spending limits on the account could help prevent you from crossing this threshold. To avoid maxing out credit cards, it may be helpful to understand from the start how your credit card limit is determined by the card issuer and under what circumstances you may be able to raise it.
How your credit card limit is determined
Your credit limit is determined by several factors that may include:
- Your income
- Your credit score
- Your credit card account history with the issuer
- Your payment history for that particular card
The debts you are servicing on one credit card or multiple cards that you use for different spending purposes can all impact your credit utilization ratio. This may be a snapshot of the balances you are carrying on different cards at any one time—but it's an important factor in your overall creditworthiness. Note: it's advised to keep the credit utilization ratio on one credit card or multiple cards under 30%, as going higher can have an adverse effect on your credit score.
Benefits of setting up a credit card spending limit
As we've mentioned earlier in this article, setting a limit could help you avoid maxing out your card's available credit and stay within your budget for planned purchases. It could also help you control purchases if you have an authorized user on the account, such as any children under 18. Ultimately, perhaps the most important reason to set limits is if it would be helpful to your own peace of mind by sticking to a budget when it comes to using your credit cards.
How to apply for a higher credit card limit
Having good to excellent credit could increase your chances of getting approved for a higher credit limit on your card or cards. Raising your card limit can reduce the chances of going over the limit if you have to make a major purchase using the card. The process of raising the limit may be as simple as calling the number on the back of your credit card and asking the issuer. This can be done typically after 6 to 12 months of excellent payment history and overall low credit utilization.
When you get a new job with a higher salary and your gross income goes up, that may be a good time to reach out to your card issuer and ask if they can raise your limit.
If you do apply for a card with a high limit, be sure to provide proof of income. Your credit score will also be assessed at this time, and you may need to produce documentation showing not only proof of income, but employment status and your monthly rent or mortgage payment (if applicable). Please note: Applying for a higher limit on your credit card requires the card issuer to conduct a hard inquiry on your credit report, which will likely impact your credit score temporarily.
Things to know before requesting a higher limit
Before you call the credit card issuer to ask for a raise to your limit, there are a few more factors to consider:
- Raising your limit on multiple cards in a fairly short period of time such as several weeks could reduce your credit score.
- Adding multiple credit cards in a short time period—even if you are a person with a high income or substantial net worth—could raise concerns among issuers that you are taking on more potential debts than you can handle.
Tips on not going over your credit card spending limit
Making a budget for your credit card spending, including holiday purchases, and checking your credit card accounts online may help you avoid going over your limit. You may also be able to set alerts for major purchases so that your bank contacts you by text message or email for large purchases or purchases over a limit that you set.
Chase Credit Journey® is an online tool that offers access to your Experian™ credit report. Using Credit Journey can give you a snapshot of your credit utilization and may help you better understand how raising your limit on your card or multiple cards could impact your credit score.