Your credit limit is a key part of how credit works. It affects how much you can borrow, your financial flexibility and even your credit score. Whether you’re looking to understand your current limit or hoping to increase it, this guide will break it all down – simply and clearly. Phew.
What is a credit limit?
A credit limit is the maximum amount a lender lets you borrow on a credit card or line of credit. Think of it as a ceiling on your borrowing power. Staying within your limit is crucial for managing your credit responsibly and keeping your credit score in good shape.
Why do credit limits matter?
Your credit limit isn’t just about how much you can spend. It also plays a big role in your overall financial health. A higher limit can mean:
- Increased purchasing power: Giving you more flexibility to handle larger expenses.
- Improved credit score: As long as you keep your credit utilisation low – we’ll explain this shortly.
But it’s just as important to manage your limit wisely to avoid overspending and unnecessary debt.
Understanding your credit limit
Lenders decide your credit limit based on several factors, including:
- Your credit score: Higher scores often result in higher limits, as they indicate you’re a reliable borrower.
- Your income: The more you earn, the more you may qualify to borrow.
- Debt-to-income ratio: This compares your monthly debt payments to your income. A lower ratio shows you’re not overextended financially.
- Length of credit history: A longer, well-managed credit history gives lenders confidence in your borrowing habits.
How credit limits are set
When you apply for a credit card or loan, lenders assess your financial profile to decide your credit limit. They consider your credit report, income and other factors to determine what they’re comfortable lending.
How to increase your credit limit
If you’d like a higher credit limit, there are some steps to make it happen:
Requesting a credit limit increase
- Timing is key: Wait until you’ve demonstrated responsible credit behaviour, such as consistently paying on time or increasing your income.
- Approach your lender: Many lenders allow you to request an increase online or over the phone. Be prepared to explain why you’re requesting it and provide any updates to your financial situation.
Improve your creditworthiness
- Pay your bills on time: A spotless payment history is one of the best ways to show lenders you’re reliable.
- Keep your credit utilisation low: Aim to use less than 30% of your current credit limit. For example, if your limit is £1000, try not to carry a balance higher than £300.
- Check your credit report: Dispute any errors that could be unfairly dragging down your credit score.
Consolidate your debt
If you have multiple credit accounts with high balances, consolidating them into one loan with a lower interest rate could help you pay down debt faster. This may improve your credit score and increase your chances of a higher limit – but be careful. If you start spending on credit cards again, you could end up in more debt than
Open a new credit card
Opening a new credit card can raise your overall credit limit, as long as you manage it responsibly. Keep in mind that applying for too many cards at once can negatively impact your score, so proceed with caution.
How to increase your Zilch credit limit
Want a higher limit to spread the cost with Zilch? You might be able to increase your Zilch limit by ticking off a few simple tasks in the app. These include:
- Adding Zilch to your digital wallet
- Connecting Open Banking
- Referring a friend
- Making a Pay now transaction
- Making a Tap and Pay transaction
Your credit limit could also increase as you continue to use Zilch responsibly and make payments on time.
The risks of high credit limits
While a higher credit limit can offer benefits, it’s important to be aware of the risks:
- Overspending: A higher limit can make it tempting to spend more than you can afford to pay back.
- Debt accumulation: Carrying high balances across multiple accounts can quickly lead to unmanageable debt.
- Negative impact on your credit score: If your spending pushes your credit utilisation too high, it could harm your score – even if you’re within your limit.
Credit limits in a nutshell
Your credit limit is more than just a spending cap – it’s a tool that can help or hurt your financial health depending on how you manage it. If you’re looking to increase your limit, focus on building a strong credit profile, managing debt responsibly and staying informed about your financial situation.
Remember, a higher credit limit is only an advantage if you use it wisely. Take small steps, stay in control and you’ll be on your way to stronger financial health. Go you.