A credit limit on a credit card is the maximum dollar amount a cardholder can access for purchases, balance transfers, cash advances, fees and interest charges combined. Though credit card cash advances have their own credit limit, that limit is part of the overall credit limit.
A credit card’s limit is determined when the credit card applicant is first approved for an account, and it’s based on the applicant’s credit history, annual income, current debt level, and overall creditworthiness. The card issuer wants to make sure a cardholder can pay their minimum payment, even if the balance approaches the credit limit, so a limit is set to reflect how much a person can afford. If your income is low, for example, you may get approved for a low starting credit limit.
A starting credit limit isn’t permanent, however. There are ways to get a credit limit increase as you build a relationship with your card issuer. Paying your bills on time and staying well below your credit limit are good habits that could lead to credit limit increases later. Some issuers will raise a credit limit on a credit card without a request from the cardholder, but others will wait until you ask. Keeping the card issuer updated with your current annual income is one way to get a credit limit increase without asking. If you get a raise or promotion at your job, your card issuer may be much more inclined to approve a limit increase.
That said, it’s worth noting that a credit card limit can also be lowered. Cardholders who miss payments or rack up a lot of debt may have their credit card limit decreased - often without notification. It’s a good idea to keep an eye out for credit limit changes so you don’t accidentally go over your limit.
As long as your balance is less than or equal to your credit limit, no penalty fees will be charged. Furthermore, credit card companies can only charge over-limit fees if you have actively opted-in for the ability to charge more than your credit limit.
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