What is a Credit Card Limit?

Qualifying for a credit card with a high spending limit usually requires an excellent credit history and a high credit score. This is because your card limit is more than just the stopping point for spending; it’s also a reflection of how your credit card company views your credit worthiness. This is why people with diverse credit backgrounds are offered widely varying limits and conditions even though they are applying for the same type of card.

Penalties for exceeding your credit limit

When you first receive your card, the credit card company will set a specific spending limit on your account. Of course, if you use the credit card wisely and keep your account in good standing by paying your bills on time and not using more than half of the credit available, the credit card issuer may decide to raise your limit. If this is the case, you’ll receive written notification from your lender specifying the new credit limit amount and the date it will go into effect.

But if you overspend and exceed your card’s credit limit, you will be penalized. Penalties will vary depending on which credit card company your account is with and which type of card you have. Penalties can be assessed as a specific dollar amount, a permanent increase to your card’s annual percentage rate or, in extreme cases, suspension of your charging privileges.

Raising your credit limit

If you find yourself facing some kind of financial situation in your life and you feel that you need a higher credit limit on your cards to help you get through it, usually all you have to do is ask. In most cases, credit card companies are happy to increase your credit limit if:

• Your credit card account is in good standing
• You have made all of your payments on time
• Your credit score indicates creditworthiness
• The increase you request is a reasonable amount above your present limit

Keep in mind that the credit limit on your credit card is there to protect both you and your lender. Know your limit and keep your spending levels below it to ensure good financial health.