Your credit limit is the amount of borrowed money you have to spend on a credit card; this amount is set by the card provider when your application is granted. The credit card company will usually have a minimum and maximum credit limit, but your limit will be decided based on your credit score. Your first credit limit is often a provisional limit which may be increased in the future.
Setting credit limits
When you apply for credit the lender will score you from its own scoring sheet, as each lender will have different requirements from its customers. This means that if one company provides you with a small credit limit, another may offer you a much larger one, and does not necessarily mean that you have a bad credit rating.
Credit card companies will consider many factors when setting your credit limit. These include your other outstanding debts on credit cards, your payment history and the amount of credit you currently have available to you. Since the credit crunch hit, it has been much harder for customers to increase their credit limits or get offered high initial credit limits as the government are pressing for companies to lend responsibly.
Provisional credit limit
Most of the time lenders will set new customers a provisional credit limit until they are satisfied that the borrower is responsible enough to manage a higher limit. If you use your credit card wisely in the first three to six months, you might find that you are offered a much higher credit limit without asking – this is known as an unsolicited (i.e. you didn’t ask for it) credit limit increase and is something that the government are trying to prevent.
There are no credit card regulations around credit limits, although the UK Cards Association published best practice guidelines for credit card limit increases in January 2011, which said:
“The guidelines are built around what are known as ‘low and grow’ policies. This means customers may be granted a small initial credit limit and, if the card is used responsibly and other data indicates that the cardholder would be able to manage a higher limit, it may be increased incrementally. This encourages responsible borrowing and allows cardholders to manage their credit.”
It is very unlikely that you will be able increase your credit limit during this initial period unless you have plans to decrease your limit on a different card in order to use another. Plus, even if you do reduce your credit limit on a different card (which, once changed, won’t be able to be changed again for 6 months), it will be up to the card provider’s discretion when it comes to the final decision.
Grant Bather, a spokesperson from Virgin Money said that if customers have “applied for another card with MBNA or Virgin, we can reprioritise their lines between cards”.
“Customers would need to contact us to request this and we’d help them through this process.
He continued: “If the second card they hold is with another lender and they have reduced their credit limit, then we would need some information to consider the customers’ request in order for us to accurately assess their stability, ability and willingness to pay a higher credit line with us.”
Mr Bather went on to say that the circumstances are different for every customer and that each request would be considered on an individual basis.
The information that would be needed would probably be the letter you receive from your other credit card provider saying that your credit limit has been successfully reduced. This, along with the credit check that was conducted by your new card provider when you applied would then be used to see if more credit could be offered to you on your new card.
Increase your credit limit
If you have been offered a low credit limit and would like to increase your credit limit you can inform the credit card company that you would like a higher limit. If you do not have an excellent credit rating, this often results in little action, but it does mean that the company have a record of your request.
If you have checked your payment history and you have evidence that you have paid bills and debts on time, paid more than the minimum payment, and have not maxed out the credit available to you, the company might be more inclined to provide you with an increased limit.
At some point we all wish we had a higher credit limit so we could put down a deposit on a car, or book a holiday, or pay a bill, but it can be difficult to get an increase unless you have a genuine reason. If you want to increase your credit limit for something specific, you should mention this when contacting the company as they may be able to provide you with a temporary credit limit increase.
However, it is not impossible to increase your credit limit. There are ways of doing this over a longer period of time. In order for a creditor to offer you a higher limit, you need to prove to the lender that you are able to manage more borrowed money and debt. This means that paying off your balances in full, always paying on time, not putting in too many requests for an increase, and generally behaving like a responsible borrower all go towards persuading a lender to offer you a higher limit.
Compare credit cards
When you compare credit cards online you should be provided with a guide as to the maximum and minimum credit limits available. It is important that you look at this carefully when applying for credit cards so that you can be sure that the one application you do make is for the card that will best suit your needs and individual circumstances. You shouldn’t make too many applications for credit in a short period of time because it can have a negative impact on your credit score (it makes you look like you are desperate for money; money that you may not be able to pay back).
