2.6 Credit card limits

When you get a credit card the provider will limit the amount you are allowed to spend on it. This is called your credit limit.

Your credit limit will depend on your credit rating, your age, your current annual salary and the type of card you have (gold and platinum credit cards usually come with higher credit limits).

A credit card provider will look at your salary when setting your credit card limit because they will need to see how much you can afford to pay back each month. They would avoid giving someone earning £10,000 a year a £10,000 credit limit because, if they borrowed the full amount, they would need to use their whole annual salary to pay it back. The individual would not realistically be able to do this because they would have other bills to pay.

When someone has used up their entire credit limit they are said to have ‘maxed out’ their card. If the credit card user then uses their card to pay for other goods they will go over their credit card limit and get charged a penalty fee.

Sometimes a credit card provider will change your credit limit. They may decrease it if you have handled your account badly by going over your limit or missing payments. They may increase it when you approach your limit. Whenever the credit card provider changes your credit limit they will send you a letter detailing the changes.

Regardless of what your credit limit is, you should only ever spend on your card what you can afford to pay back in the long run. Before maxing out your card it is worth considering what the minimum repayment will be when you have used up your entire credit limit. The credit card provider will base your credit limit on your annual salary but won’t know the full details of your other financial responsibilities and thus how much you will be able to afford each month – only you will know that.

If you can’t afford to repay at least the minimum repayment based on the full credit limit then don’t max out your card.

Most credit card bills will have a section displaying how much of your credit limit you have available. This section of the bill will tell you what your current limit is, the amount of credit you have available to you (your credit limit minus the balance on your card) and your cash limit. If your available credit is less than your cash limit, this section will tell you what your available cash credit is (it will be the same as ‘Your available credit’).

Cash limit

Your bill will also mention your ‘cash limit’ in the section where it details your credit limit. Your cash limit is the amount you can take out on your credit card as cash, for example from a cash machine. The cash limit is part of your overall credit limit and not an additional amount that you have on top of it. If, for example, you have a credit limit of £650 and a cash limit of £450 and you took out £450 in cash on the credit card, you would have £200 of your limit left to make purchases on your card.

Sometimes your credit card provider will stipulate that they reserve the right to withdraw your cash facility at any time they wish. They are likely to do this if you abuse your credit card account by going over your cash limit or your overall credit limit.

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