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How to choose a credit limit for your credit card

Choosing the right credit limit means deciding on a total amount you can spend on your credit card that is both flexible and affordable.

If you're applying for a new credit card, you may have the choice between requesting a specific credit limit or letting the lender offer you one. You can also request a credit limit increase or decrease on your existing card. Ideally, you want to choose a credit limit that allows you to pay for the things you need, while also remaining affordable so it doesn't put pressure on your budget.

What is a credit limit?

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

What is a minimum or maximum credit limit?

  • A minimum credit limit is the lowest amount of credit you can get approved for on a particular credit card. In Australia, minimum credit card limits typically start from $500 to $15,000 for personal credit cards and can be higher for business credit cards.
  • A maximum credit limit is the highest amount of credit you can get approved for on a card. It can be as little as $3,000 or as much as $100,000.

How to factor in minimum and maximum credit limits

Not all credit cards list a minimum and maximum credit limit but when they do, it means you can request an amount that sits within that. For example, the minimum could be $5,000 and the maximum could be $30,000.

Consider these points when weighing up your options:

  • Lower limit credit cards: 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, with minimum credit limits that typically start from $500, $1,000 or $2,000 depending on the card.
  • Higher limit credit cards: More premium cards with extra features, rewards programs and higher fees generally offer higher credit limits, and they often come with a minimum credit limit of around $15,000.
Tip: You can also use the minimum credit limit to help decide if a card is right based on what is affordable for you. Just ask yourself how long it would take to pay off the limit if you maxed out the card – or use Finder's repayment calculator to look at different scenarios and costs.

How to choose a credit limit

The average credit limit for a credit card in Australia is around $9,500 according to Finder analysis of Reserve Bank of Australia data. But it's different for everyone.

To choose your credit limit, some suggest you consider requesting a limit equal to 50% of your monthly income. So if you make a monthly income after tax of $5,000, then request a $2,500 limit. This is a guideline that helps you choose a limit that is affordable to pay off, so you don't end up with a big credit card debt to pay each month.

Keep the following in mind:

  • You can always request a credit limit increase if you want a higher limit in the future.
  • Requests for an increase are subject to credit approval.
  • You can request a lower credit limit at any time, but it can't be lower than the card's minimum credit limit.
  • While you can contact your bank to request a credit limit increase or decrease, it can't contact you to offer credit limit increases.

And, if you don't want to choose a limit straight away, you can also let the lender offer you one.

What is the risk of choosing a high credit limit?

Having more credit than you need could tempt you to overspend. For instance, if you want $2,000 to help pay for flights and travel, but you get a credit limit of $5,000, it can be really easy to charge $5,000 worth of expenses in a matter of months.

It can also impact your ability to take out other loans. When you apply for a home loan, for instance, the bank will consider your outstanding liabilities. The bank will factor in your total credit limit (not just your outstanding debt), so a higher credit card limit can actually reduce your borrowing power.

Also, a high credit limit can impact your credit score, as banks and lenders consider you to be riskier if you have a high amount of unsecured debt, such as multiple credit cards.

What do lenders consider when determining your credit limit?

  • Affordability. The credit limit you get must be an amount you can afford to pay off within 3 years. This is a requirement all lenders must follow under the Australian National Consumer Credit Protection Act.
  • Annual income. This includes your salary as well as eligible income from assets and government payments.
  • Employment. You'll be asked to confirm your current employment status and provide your employer's contact information for verification.
  • Existing liabilities. This includes your current credit card debts, personal loans, car loans and mortgages.
  • Credit history. The lender will review your credit history and score, so make sure to check your credit score before you apply.

Could you manage your finances without a credit card?

74% of Australians surveyed said they could manage their budget without a credit card, according to our consumer sentiment tracker (November data). A credit card can be useful for managing your spending and earning points if you pay it off each month but it's risky to rely on a credit card when you can't afford to pay back what you spend. Interest charges will add to what you need to pay off and some cards have interest rates around 27% for purchases.

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