What is a credit limit?

Credit limits is the maximum amount that a credit card company will loan to a person on a credit card.

The credit limit is part of the flexibility of a credit card.  Unlike a loan there is no obligation to take the credit card up to the limit.  This means that the credit card can have no money owing on it and there is no interest charged.

If a credit limit is breached then there are likely to be penalties.  Many people assume that a credit card will simply be refused if they make a purchase that will breach their credit limit, and this does happen.  However, it is becoming more common for a credit limit to be allowed to be breached and then to charge a penalties.  These penalties can add up to a significant sum if this happens frequently.

It is a good idea for a card user to know what their credit limit is on their cards.  The credit limit can be found on most credit card statements.

Credit limits are decided in the same way as loans and other types of lending are decided.  A judgement is made on whether the applicant is a good credit risk, which is usually done by looking at a person’s income and credit rating.  The credit rating is a record of how well a person has handled various types of credit in the past.  If a person has been a customer of the bank in the past then a credit limit may also be set by the bank’s direct experience with the credit card applicant.

It is possible to increase a credit card limit.  The first step to doing this is to phone up the credit card company and ask for a higher credit card limit.  Although this may be done immediately, it will often be the case that the operator who answers the call in the first instance will not have the authority to raise the credit limit.  It is then a good idea to ask for the manager or the customer retention officer as these people will have more authority.

It is a good idea for the credit card applicant to know clearly why they need to have a credit card spending limit raised.  If the credit card limit needs to be raised for a temporary reason then it will be easier to get a temporary rise in the credit limit than a permanent rise.  It is a good idea to bear the temporary rise in a credit limit in mind during this period and not to put on debt that will be carried over.