What is a credit limit?

A credit limit is the maximum amount of credit a lender authorizes a borrower to use on a credit card or line of credit. If the borrower exceeds the credit limit, they may be subject to penalties, fees, or even canceled credit cards and lines of credit.

Keep reading to learn how credit limits work, how they are set and what may happen if you exceed your credit card’s limit.

What you’ll learn:

• A credit limit is the amount of credit a lender grants you on a credit card or other type of credit account.

• Lenders determine your credit limit by examining your credit history and financial information.

• You can typically only spend up to your credit limit until you repay some or all of your balance. Spending more than your credit limit could result in penalties.

• Capital One cardholders are never charged over-the-limit penalties on credit card balances. View important rates and disclosures.

Generally, a credit limit is the maximum amount of money a borrower or cardholder can charge on a revolving credit account. A credit card is maxed out when its limit is met or exceeded. Credit limits are often associated with credit cards, but they can also apply to other lines of credit.

Lenders typically determine credit limits after a person has applied for a credit card. Like the decision to approve or decline an application, credit limits are often based on creditworthiness, which is determined by reviewing credit reports and credit history.

Credit limits don’t stay the same forever. You may be able to request a credit limit increase. In some cases, lenders proactively adjust credit limits. That could mean an increase or a decrease, depending on the circumstances.

While related, credit limits and available credit are not the same thing:

• Credit limit: The maximum amount of credit a lender allows a borrower to use.

• Available credit: The remaining amount of credit you can use on a credit card or line of credit. 

Purchases and other transactions, such as cash advances, reduce your available credit. And so will any credit card interest and fees you’re charged. But those things don’t change your credit limit.

Lenders typically determine credit limits by considering things like credit scores and reports. Some other factors lenders may consider include the following:

• Payment history: Do you pay your bills on time, including monthly credit card bills? Have you ever filed for bankruptcy or had a debt sent to collections?

• Current accounts: How many accounts do you have open? And what kinds of loans do you have open? Do you sustain high balances across your existing credit cards?

• Account history: How long have you had your current accounts? Have you applied for a bunch of new credit recently?

• Credit card debt: How much do you owe? How much credit are you using? How much do you have available?

• Income: Do you make enough money to cover your monthly bill?

• Debt-to-income (DTI) ratio: What do your monthly debt payments look like compared to your monthly gross income?

Your credit limit has an important relationship with your credit utilization ratio. Credit utilization is the percentage of available credit you’re using across all your revolving accounts. And it’s one factor that affects credit scores. 

The Consumer Financial Protection Bureau (CFPB) recommends keeping your credit utilization rate under 30%. The agency also says paying off your credit cards monthly is the best way to keep that number low.

A higher credit limit may allow you to spend more while keeping your utilization low, which could have a positive impact on your scores. But that freedom and flexibility come with additional responsibility. High credit limits also make it easier to build debt quickly, which may negatively impact scores. 

However, it’s important to remember that credit utilization is just one of the factors that can help determine good credit scores.

Going over your credit limit may result in declined transactions, fees or higher interest rates. Nevertheless, lenders can only charge over-the-limit fees if you participate in their over-limit coverage program. However, they may approve or decline transactions that exceed your credit limit—regardless of your enrollment status.

So, even if you are not enrolled, an over-the-limit charge may still be approved—but the lender cannot impose an over-the-limit fee. If you have opted into an over-the-limit coverage program, lenders can charge one fee per billing cycle and no more than three fees for the same transaction.

Contact your credit card company if you’re unsure of your program enrollment.

Capital One cardholders are never charged over-the-limit fees. View important rates and disclosures. Eligible cardholders may be able to exceed their credit limits, and if your account has access, you can use the Confirm Purchasing Power tool to check whether an over-limit purchase may be approved. You can also disable the ability to spend over your credit limit in your over-limit preferences.

Your credit limit is the maximum amount you can borrow on a credit card or line of credit. Lenders typically determine credit limits based on factors like your credit and payment history. Going over your credit limit may result in fees or other consequences, but some credit card issuers—like Capital One—generally don’t charge over-the-limit penalties. View important rates and disclosures.