What is a Credit Limit?

A credit limit is the maximum amount you can charge on your credit card. It’s set by your credit card issuer based on your income, credit history, and overall financial profile.

Example:

• Your credit card has a $5,000 limit.
• You spend $1,500 → You have $3,500 remaining in available credit.
• If you try to spend $6,000, your transaction will be declined.

What is Credit Utilization? Why Does It Matter?

Credit utilization is the percentage of your credit limit that you are using. It’s a key factor in your credit score (30% of your score).

Formula:
Credit Utilization = (Balance ÷ Credit Limit) × 100

Example:

Keep utilization below 30% (preferably under 10% for the best score).
High utilization can lower your credit score and make lenders think you rely too much on credit.

How to Manage Credit Utilization Like a Pro

Keep Your Utilization Low (Under 30%)

• Aim to use only 10-30% of your total credit limit.
• If your limit is $5,000, try to keep your balance below $1,500.

Pay Off Your Balance Early

• Even if you pay in full each month, your statement balance is reported to credit bureaus.
• Solution: Make an early payment before the statement closes to reduce reported utilization.

Request a Credit Limit Increase

• A higher limit = lower utilization (as long as spending stays the same).
• Example:
  1. If your balance is $1,500 on a $3,000 limit → 50% utilization ❌
  2. If your limit increases to $6,000 → 25% utilization ✅
• How to request a limit increase:
  1. Log into your credit card account.
  2. Find “Increase Credit Limit” under account settings.
  3. Enter your updated income and employment details.
  4. Submit your request (some issuers approve instantly).

Important: Some banks do a hard inquiry when increasing limits—ask before requesting.

Spread Spending Across Multiple Cards

• Instead of maxing out one card, use multiple credit cards to distribute your spending.
• Example:
  • Card 1: $500 balance on a $5,000 limit (10% utilization).
  • Card 2: $700 balance on a $7,000 limit (10% utilization).
  • Total Utilization: ✅ 10% across all cards (better than 50% on one).

Avoid Maxing Out Your Card

• Using 100% of your limit is risky—even if you plan to pay it off.
• Lenders see high utilization as financial distress.

Recap: Smart Credit Limit & Utilization Strategies

✅ Keep credit utilization below 30% (preferably under 10%).
✅ Pay off balances before the statement closes to reduce reported utilization.
✅ Request a credit limit increase (but don’t overspend).
✅ Spread spending across multiple cards to keep balances low.
✅ Avoid maxing out your card—it can hurt your credit score!