Your credit card limit refers to the total amount of debt your card can accrue at any one time. This means you may not be allowed to owe more than this limit, either from one big purchase or multiple purchases that build up over time.
For example, say you have a limit of $8,000. You’ll be able to use your credit card until you reach this limit, provided you make the minimum monthly payments and pay any extra fees or charges that are incurred. If you already have an outstanding balance of $8,000 and try to use your credit card again, it will likely be declined.
Sometimes you can go over the limit if you’re fairly close and a transaction is large enough to carry you over the line. It is at your banks discretion to allow the payment to go through and your bank will likely charge you an over the limit fee. Going over your limit can also negatively affect your credit score.
Our advice? Focus on applying for a credit limit that will suit your lifestyle and budget rather than just going for the highest limit. Do some budgeting, review your expenses against your income, and don’t feel like you need to apply for anything greater than you need.
Credit card limits prevent users from spending money that they’ll never be able to repay. After all, no shopping spree or holiday is worth getting leveraged to the hilt!
Some credit cards are advertised as having a maximum and minimum limit. When you apply, your limit will fit inside that range, based on your lender’s assessment of how much credit you should have access to.
When you apply for a credit card, you apply for a certain limit of your choosing, up to the maximum limit (if one is advertised – many banks provide maximum limits upon application). You need to be able to prove this limit can be repaid, which is why you often need to provide proof of income.
The bank then determines how much your credit card’s limit will be, which could be equal to or lower than what you asked for.
It’s entirely possible that two people earning the same amount of money and applying for the same card will receive different credit limits, based on their financial history. Financial institutions will use the following info in their calculations:
The specific calculations used by banks and credit card providers can differ, so you might find that you will be approved for different amounts if you apply to different banks.
Want to know what your minimum credit card payments could be, or how long it might take to pay off a credit card? Use our credit card repayment calculator.
Once you have your credit card, you can apply to change your limit. Depending on your needs, you can ask your bank to increase or decrease your credit card limit. Increasing your credit limit means you can spend more with your card, provided you pay your minimum payments and fees, whereas a decrease can make your credit limit easier to manage.
Keep in mind when applying for an increase you will need to go through the approval process again to prove you can afford it.
Reducing your credit card limit can help you avoid falling into a debt trap. It removes the ability to overspend and can be an effective budgeting tool. It may also improve your credit score, which can come in handy if you want to apply for a personal loan or home loan.
If you’re having difficulty paying off a credit card, you might want to consider a balance transfer card which typically has low, or even zero, interest rates for set periods to help you pay off your debt.
All credit cards do have a credit card limit, though there are high limit credit cards that do allow you to have a larger balance. These cards are typically quite exclusive and require you to have a large pay-packet to apply.
High limit credit cards often have higher interest rates and large annual fees. Beyond having no maximum credit limit, you can benefit from a few other perks, including:
You may come across charge cards advertised as having no spending limit. Charge cards differ from credit cards in that you must pay off your balance in full every month before you can use it again, whereas credit cards only require you to pay a minimum monthly payment.
To apply for a credit card with a large credit limit, you’ll generally need a sizable paycheck in a permanent or long-term role and a favourable credit score, so the card provider can be confident in your ability to handle greater amounts of debt.
The application process for high-limit credit cards is exactly the same as for any other credit card – but the financial institution needs to be confident you’re able to handle higher levels of debt. As such, they might ask for a bit more information about your finances and income.
No, a minimum credit card limit refers to the minimum balance you can apply for. You can’t apply for a credit card with a limit lower than the minimum amount listed.
For example, if a bank advertised a card with a minimum credit limit of $500, you can’t receive a credit limit of $400. Your card’s limit has to be equal to or over the minimum.
Once your credit card application is approved, you can spend as little or as much as you like, given you don’t max out your card or miss an essential payment.
Yes, changing your credit card limit can impact your credit score. Decreasing your limit may improve your credit rating, and applying for too many increases can harm it in the same way that applying for multiple loans negatively impacts your credit score.
Some banks will require that you’ve held your credit card for a minimum period of time before you can apply to increase your credit limit, and you may only be able to do this a few times each year.
If you’re struggling with repayments, you do have the option of moving your remaining balance to a balance transfer card with lower interest rates. Balance transfer cards will allow you to transfer either the full owing balance or a percentage of your new card limit (to leave you with a small amount for new purchases).
For example, if the card you would like to transfer to has an 80% balance transfer limit and you had $8,000 in debt that you wanted to transfer, you will need to apply for the new card with a credit limit of at least $10,000. After the balance transfer is complete, you would still have $2,000 available to make new purchases on the card. But be aware, that these new purchases will not be covered under your Balance Transfer offer and you will likely pay interest on these.
Should the new card you choose not have any percentage limit for balance transfers, you would be able to apply for the new card with a limit of $8000. However, this means there would be no available funds on the card to use until you paid down the debt.
Keep in mind that balance transfer cards are designed to help you manage existing debt, and won’t cure a spending problem. As such, you’ll typically be charged additional interest at a greater rate on new purchases than on balance transfer repayments.
For credit cards opened before 1 July 2012, you’ll typically be charged an over-the-limit fee when you exceed your credit card limit. If you opened your card after this date, you won’t pay a fee due to Federal Government changes to the National Consumer Credit Protection Amendment Regulation. The change occurred to help credit cardholders avoid an effective ‘debt on debt’ charge.1
Instead, your card will decline transactions until you make enough payments to get your balance back under your maximum limit.
1 National Consumer Credit Protection Amendment Regulation 12012 (No. 1): Explanatory Statement. Federal Register of Legislation, Australian Government. 2012.