What Is a Credit Limit and Why Does It Matter?

Have you come across the term “credit limit” but then you don’t seem to understand what it means and why it matters? Worry not, if you are and have been seeking answers to these questions. They would both be answered for you right here in this article.

What Is a Credit Limit and Why Does It Matter?
What Is a Credit Limit and Why Does It Matter?

Have you ever used a credit card before? If so, then you should already understand that you have a credit limit. But then again, what is credit limit and what does it matter? A credit limit is known as the maximum amount of money that a lender would allow you to spend using a credit card or a credit line. In other words, credit limits is the amount a financial intuition gives to its clients.

And it is extended on a credit card or line of credit. However, it is very good that you know your credit limit. But reaching that limit isn’t a good idea. The reason is that when you spend near your credit limits or exceed your credit limits, it affects your credit scores and causes long-term financial issues like fees and debts. So, it is good to know your credit limits. But spending or exceeding it is very bad and could put your credit score in bad shape.

How Does Credit Limit Work?

Your credit limit is the maximum amount you can charge on a credit card. So, as you use your card to make any monetary transaction, the amount of each purchase is removed from your limit. And whatever is left is considered as your available credit.

So, for example, if you have $1,500 as your credit limits and then you make a purchase of something worth $700. You still have your available credit of $800, which you can still spend.

Why Does Credit Limit Matter?

Your credit limit is important because it determines how much you will be able to spend using your credit cards. It also serves as a way for money lenders to limit the risk of lending out their money. It is significant because using a significant amount of approximately 30% can lower your scores.

However, when you have high credit limits, it is a good thing. This is because it makes you feel free to spend money when you need to. And it also helps you have and maintain good scores.

Also, it depends on when money lenders report your card balance to the credit bureaus. It could show that you are using it very close to your credit limits. Even though you pay off the balance every month.

What is a Good Credit Limit to Set?

If you want to set your credit limits so as not to go near the limits and create a bad effect on your credit score, you should keep your credit utilization under 30%. This, however, implies that if you have about 20,000 dollars available, you wouldn’t want your balances to be over $6,000. So, if it exceeds 30 percent, make sure to pay it off as soon as possible. 

Best High Limit Credit Cards

When you get high-limits credit card, you will have a positive credit history. And even when your credit score falls, some cards might still give you high credit limits. What are these high-limits credit cards? They include;

  • Chase Sapphire Reverse -$10,000
  • Chase Sapphire Preferred Card -$5,000
  • Discover it® Student Cash Back -$500
  • Petal® 2 Visa® Credit Card -$300 ($10,000 maximum)
  • U.S. Bank Secured Visa® Card -$300 ($5,000 maximum)
  • Chase Freedom Unlimited® -$500
  • Citi® Double Cash Card -$500

You can go for any of these cards. And not only would they give you high credit limits. But they would also help to protect your credit scores.

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