How to choose a credit limit for your credit card

Your credit limit gives you a set amount you can spend with your credit card but it also needs to be affordable – here's how that works.

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If you're applying for a new credit card, you can ask for a specific credit limit or let the lender offer you one. You can also request a different credit limit on your existing card.

But ultimately, the credit limit you get needs to be for an amount that you could afford to pay off within three years. This is a requirement all lenders need to follow under the Australian National Consumer Credit Protection Act.

How to choose a credit limit

Your credit limit is the maximum amount you can charge to your credit card. This is why it's important to request a credit limit that suits your financial needs and your ability to repay.

Although you don't need to spend up to your credit limit, having more credit than you need could tempt you to overspend. It can also have an impact on how much credit you can apply for with other products (such as other loans, mortgages or credit cards).

Some cards have minimum and maximum credit limits, so you can request an amount that sits within that. For example, the minimum could be $5,000 and the maximum could be $30,000. Typically, cards with lower credit limits may offer more competitive fees or interest rates. These cards are suited to people who may not be making large purchases or spending on their credit card regularly. More premium cards with extra features, rewards programs and higher fees may offer higher credit limits.

When choosing a credit limit, some people recommend that you request a limit that is 50% of your monthly income. But it is even better if you can get 30%. For example, if you make a monthly income of $5,000, then you should request between $1,500 and $2,500.

You can always request a credit limit increase if you require more in the future. These requests are also subject to approval. It's also important to know that credit card issuers can't offer you a higher credit limit than what you request. Although you can contact your bank to request a credit limit or decrease, a lender can't contact you to offer credit limit increases.

What do lenders consider when determining your credit limit?

  • Amount requested. The lender will consider the credit limit you've requested in your application.
  • Annual income. This includes your salary as well as income from assets and government payments.
  • Employment. You'll be asked to confirm your current employment status and provide your employer's contact information.
  • Existing liabilities. This includes existing credit card debts, loans and mortgages.
  • Credit history. When you apply for a credit card, the lender will review your credit history and score. How much credit you're approved for is also listed in your credit report. Australian credit card issuers only accept good or excellent credit scores, so make sure to check your credit score before you apply.

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