What is a credit limit? Can it positively or negatively affect my credit score?

Your credit limit is the maximum amount of money that you are able to borrow on a credit card. The credit limit is set by your credit card provider and is completely individual to you. If you’re unsure of what your credit limit is, you can ask your provider, or view it on your credit card statement.

Your credit limit which is calculated by looking at:

  • how much you earn, 
  • how much you owe, 
  • any other credit limits you have, 
  • your repayment history 
  • and how long you have been a customer. 

As always, having a great credit score will improve your chances of increasing your credit limit, and Loqbox has more information on how to improve your credit score here.

Some other great tips for making sure that you’re accepted for a credit card include:

  • not applying too many times in a six month period, 
  • having a history of using credit often but paying it back responsibly, 
  • and making sure that you don’t miss repayments. 

What is a good credit limit in the UK?

There’s no set definition of what a good credit limit looks like, but as a guide, your credit limit should be an amount that you could reasonably afford to pay back, as well as being enough money to help you out at the times when you need to use credit. It’s all about balance.

You may be wondering whether a higher credit limit helps your credit score though? Well, the quick answer is that when it comes to your credit score, there isn’t a magic number that is good or bad. It is about your individual circumstances.

But spending up to the maximum of your credit card’s limit every month, whatever that limit is, won’t look great on your credit report. 

This is because lenders want to see that you’re not too reliant on using credit. If they were to glance at your credit report, they may be concerned that you’re not managing your money well.

How do I use my credit card to improve my credit score?

Good question! To keep your credit report looking happy, you’ll ideally be spending no more than 25%-30% of your available credit over a six month period.

Having credit available to use, but only actually using a small percentage of it is called ‘low credit utilisation’ — and this can positively affect your credit score (woohoo).

We have a clever credit-building tool called Loqbox Grow that can help you take advantage of this low credit utilisation method. And credit scores grow on average by 125 points within the first six months. So if you’re interested, tap here to learn more about Loqbox Grow.

Does a lowered credit card limit affect your credit score?

Sometimes you will be budgeting and trying to avoid spending more than you can afford. One way you can do this is by reducing your credit limit. 

But does a lowered credit limit affect your credit score? Well yes, it can. But it depends on your credit balance.

If your credit limit lowers but the amount you spend with your credit card stays the same, then your credit utilisation rate would go through the roof!

Credit utilisation is a complicated concept. For example, it works like this: let’s say you have a credit limit of £1,000, and you’d like to lower that limit to £500 to help you budget better. That’s fine to do! But if you have a pending balance to pay off of £250 on the credit card, then your credit utilisation rate would go from using 25% of £1000, to 50% of £500. 

This is important to keep an eye on, because having high credit utilisation can have a negative impact on your credit score. As a guide — only request to lower your credit limit if you can budget well enough to reduce your credit balance at the same time to stay below utilising 25%-30% of your total credit limit. 

Also, be mindful that your credit card provider is usually able to reduce your credit limit at any time, and for any reason. With things like the pandemic and the rise in living costs, lenders keep this in place so that they can mitigate risk. So this is another reason to keep your credit card balances in a manageable place for you to repay easily.

Does increasing your credit card limit improve your credit score?

Increasing your credit limit, but not your credit balance, reduces your credit utilisation rate.
This is a good thing for your credit score. Your credit utilisation rate has a really high impact on how your credit score is generated. 

So to recap: A lower credit limit might be useful if you are budgeting or just trying to avoid those spending temptations.

And a higher credit limit could be better when you are considering a larger purchase, like a car. But you still shouldn’t max it out in either case – aim to keep your balance lower than 25% of the credit limit to be on the safe side.

Why is my ‘available credit’ different to my ‘credit limit’?

Your available credit is what it says on the tin – how much credit you can use today. You may have spent some of your credit during this billing cycle, or have some pending transactions or fees, causing this to be lower than the full credit limit.

If you’re ever doing a balance transfer from one credit card to another, it’s possible the credit card provider may hold back an amount of your credit limit to cover transfer fees and to stop you maxing out the card.

Does applying for a credit limit increase affect your credit score?

Applying for a credit limit increase will result in a temporary dip in your credit score. But don’t worry, this is totally normal!
This also happens anytime you borrow money through a loan, or when a hard credit check is run against your credit report. The good news is that after about six months of showing that we can responsibly pay off credit, our scores start to reset.

However, it’s worth mentioning that if you apply for multiple credit limit increases in a short space of time, you’ll see a bigger and longer reduction of your credit score.

So it is a good idea to keep your applications to a minimum. A good way to do this is to only apply for credit, or credit limit increases, when you are fairly certain that your application will be accepted. You can check your credit score for free, and without impacting it, with one of these services:

ClearScore (uses Equifax data)*

Credit Club (uses Experian data)

Intuit Credit Karma (uses TransUnion data)

*Psst… if you sign up for ClearScore using this link we get a small commission. We only recommend services we really believe in. 

Does going over your credit limit affect your credit score?

It is a good idea to avoid going over your credit limit.
It will often be possible to go over your agreed amount. Your credit card might let you do it, but that doesn’t mean it’s a good idea. It will have a negative impact on your credit score. 

If you find yourself going over your credit limit repeatedly, you may even see your credit limit reduced as well. As mentioned before, this can have an affect on your credit utilisation rate which has a big impact on your credit score.

A great way to avoid going over your credit limit is to set any alerts and notifications which are available from your bank or credit card providers. They will let you know how much of your credit limit you are using, help you avoid missed repayments and stay on top of your money. Looking after your finances will look after your credit score! 

Does a declined credit limit increase affect your credit score?

If you apply for a credit limit increase, you will sometimes find that your application is declined. This could be because the credit card provider decides:

  • that you may not be able to afford to repay your increased credit based on your earnings
  • your repayment history indicates poor money management
  • or that you have too many other borrowing agreements. 

The level of impact that a declined credit limit increase has on your credit score depends on whether the lender does a hard or soft credit search as part of your application.
It isn’t always clear which sort of credit search a lender will do, so if you’re unsure, make sure you check in with them beforehand. You can find out more about hard vs soft credit checks in our blog.

Hard credit searches will likely reduce your credit score temporarily. That’s not a big problem, but you want to make sure that you are as likely as possible to be accepted when you apply as too many searches in a six month period will have a negative impact on your credit score. 

What can I do if my credit limit reduced my credit score?

First off. Don’t panic! Most of the affects your credit limit has on your credit score are temporary.
This means that you raise or lower your credit limit when you need to and within a short time, assuming you’re keeping up any repayments and looking after your finances, your credit score will be back to its glittering best. 

But what if you’re really struggling with your credit score? Still don’t panic! Because we’re here to help. For a proven way to boost your credit score, get started with Loqbox.

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For just £2.50 a week, Loqbox Grow could help you boost your credit score by up to 300 points!

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