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.
We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!
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.
Free credit score & report
Lenders know your credit score, so why shouldn't you?
Get your credit score and comprehensive report now!
Picture: Getty
More guides on Finder
-
The surprising thing Apple Pay can do with your credit card
Card cancelled? Apple is more on top of that than you might think.
-
In 9 years I’ve never paid credit card interest – here’s how
I've had 4 credit cards, earned a lot of points and used perks without ever paying a cent in interest – and you can too.
-
Thinking of making a TPD claim? Learn the 5 key steps to take
If you need to make a claim on your TPD insurance, follow these steps to ensure you have the best chance of making a successful claim.
-
Travel insurance ombudsman
Your guide to how the Financial Ombudsman Service can help resolve disputes between you and your travel insurer.
-
MasterRemit international money transfers review
MasterRemit allows you to transfer your money quickly in a range of currencies.
-
Salt and Lime Debt Consolidation Loan
Looking to consolidate your debt? Salt and Lime offers fee-free loans, same-day funding, and the ability to earn discounts on your interest over the life of the loan. Apply today.
-
September’s best balance transfer credit card offers
Standard credit card interest rates haven't changed much, but these balance transfer offers give you a way to save with 0% interest for up to 36 months.
-
From $10K debt to $50K saved: How I fixed my finances in 4 years
How Eliza paid down her debt, cut up her credit card, saved $50,000 and started investing in a few short years (all while renting in Sydney!).
-
Lowest home loan rates
Learn how to look for the cheapest home loans and how to pick them out from a broad selection on offer.
-
Coronavirus: How it’s impacting life insurance
The outbreak of covid-19 has many people wondering about their insurance options. This guide helps answer all you life insurance question during the coronavirus outbreak.
Ask an Expert
