Credit Limit

When you open a credit card, the lender sets a credit limit based on factors such as your income, existing debts and credit history. If your limit is 5,000, you can borrow up to that amount at any time. As you repay, the available credit increases again.

For example, with a 5,000 limit and a balance of 1,800, your available credit is 3,200. If you pay off 1,000, your available credit rises to 4,200.

Trying to spend beyond the limit may lead to declined transactions or, on some cards, an over-limit fee. Lenders may raise limits for customers who repay reliably, or reduce them if they see signs of financial difficulty.

A higher credit limit is not extra money; it is extra borrowing capacity that must be repaid. It can, however, help your credit score if you keep your balance low, because scoring models look at how much of your available credit you are using, known as credit utilization.