What It Means
A credit limit is the maximum balance a card company or lender allows on a revolving accountRevolving creditCredit you can borrow, repay and borrow again up to a set limit, such as a credit card or a line of credit. See more such as a credit card. What you owe counts against it, and the part you haven't used is your available credit. The company sets the limit when you open the account and can raise or lower it later. Under the Credit CARD Act rules in Regulation Z, a card issuer has to consider your ability to pay before it opens an account or raises the limit.
Try It: Four Credit Limit Rules, True or False
Pick true or false for each rule. Your score and the reason appear as you go.
All four. You know the rules that protect you when a limit changes.
How People Say It
- "They bumped my limit to five grand."
- "The card got declined, I must be maxed out."
- "Why did they lower my credit line?"
The Breakdown
Worked example. Maya's card has a $3,000 limit and she owes $900 on it.
| Situation | Limit | Balance | Available credit | UtilizationCredit utilizationThe share of your available revolving credit you're using, found by dividing your card balances by your credit limits. See more |
|---|---|---|---|---|
| Today | $3,000 | $900 | $2,100 | 30% |
| Limit raised | $4,500 | $900 | $3,600 | 20% |
| Limit lowered | $1,500 | $900 | $600 | 60% |
What the result means. The balance is the same in all three rows, yet the share of the limit it uses moves from 20% to 60%. That share is your credit utilization, which weighs on credit scoresCredit scoreA three-digit number calculated from your credit report that lenders use to judge how likely you are to repay; common models run from 300 to 850. See more, so a lower limit can hurt a score even when you haven't spent a dollar more. A higher limit gives more room, and it also makes it easier to run up a bigger balance.
If the limit is cut. The CFPB says that when an issuer lowers your limit, it can't charge an over-limit fee or a penalty rate for going over the new limit until 45 days after it notified you. That gives you time to bring the balance under the new limit.
Good to Know
Regulation Z (12 CFR 1026.51) says a card issuer can't open an account or raise a limit unless it considers your ability to make the minimum payments, based on your income or assetsAssetsThings you own that are worth money, such as cash, investments, a home or a car. Your assets minus your debts is your net worth. See more and your current obligations. Over-limit fees need your consent: under 12 CFR 1026.56 and the CFPB's explanation, an issuer can charge one only if you opted in to allow over-limit charges, and you can withdraw that choice at any time for future transactions. On a secured cardSecured credit cardA credit card backed by a cash deposit you pay up front, which usually sets your credit limit; used mostly to build or rebuild credit. See more, Experian says the limit usually equals your security depositSecurity depositMoney a tenant pays a landlord at the start of a lease, held to cover unpaid rent or damage beyond normal wear and tear and returned, minus listed charges, after move-out. See more.
FAQ
Can my credit card company lower my limit without warning?
The CFPB says issuers can generally lower a limit, even until nothing is available. If they do, they can't charge an over-limit fee or penalty rate for going over the new limit until 45 days after telling you.
What happens if I go over my credit limit?
The charge may be declined. An issuer can allow it and charge an over-limit fee only if you opted in to over-limit transactions, according to the CFPB, and you can cancel that opt-in at any time.
How do card companies decide my limit?
Regulation Z requires them to consider your ability to make the minimum payments, using your income or assets and your current debtsLiabilitiesDebts and other money you owe, such as a mortgage, a car loan or a credit card balance. Your assets minus your liabilities is your net worth. See more. Each issuer uses its own policies within that rule.
Do It in Buhata
Debt Payoff, Reminders
Set a Reminder to check each card's limit and balance after every statement, and use Debt Payoff with Premium to see which balance to bring down first.
Open BuhataRelated Terms and Categories
- Credit utilization
The share of your available revolving credit you're using, found by dividing your card balances by your credit limits.
- Revolving credit
Credit you can borrow, repay and borrow again up to a set limit, such as a credit card or a line of credit.
- Secured credit card
A credit card backed by a cash deposit you pay up front, which usually sets your credit limit; used mostly to build or rebuild credit.
- Current balance
The total you owe on a credit card right now, including charges and payments made since your last statement.
- Credit score
A three-digit number calculated from your credit report that lenders use to judge how likely you are to repay; common models run from 300 to 850.
- Annual fee
A yearly charge some credit cards bill simply for keeping the account open, listed in the card's Schumer box and charged again each anniversary.
Sources
Consumer Financial Protection Bureau, Regulation Z, "§ 1026.51 Ability to Pay"; CFPB, "Can my credit card issuer reduce my credit limit?"; CFPB, "I went over my credit limit and I was charged an overlimit fee. What can I do?"; CFPB, Regulation Z, "§ 1026.56 Requirements for over-the-limit transactions"; Experian, "What Is a Secured Credit Card?"
- www.consumerfinance.gov/rules-policy/regulations/1026/51
- www.consumerfinance.gov/ask-cfpb/can-my-credit-card-issuer-reduce-my-credit-limit-en-74
- www.consumerfinance.gov/ask-cfpb/i-went-over-my-credit-limit-and-i-was-charged-an-overlimit-fee-what-can-i-do-en-58
- www.consumerfinance.gov/rules-policy/regulations/1026/56
- www.experian.com/blogs/ask-experian/what-is-a-secured-credit-card
Last updated .