Reasons Why You Should Lower Your Credit Card Limit

Having a lower credit limit is good for people who struggle with using their credit cards. Here are the reasons why you should lower your credit card limit.

When it comes to credit cards, your credit limit is one of the most important things to consider. A credit limit is the amount of debt you can have on your credit card at any time. It is determined when you apply for a new card. Together with your card, a letter will be sent to you detailing the terms & conditions you must know.

The minimum (around $1,000 – $2,000) and maximum ($100,000) credit card limits vary on different credit cards. You can go over your credit card limit, but it’s better to think twice about it as you might be charged a fee or your new transactions will be declined. 

How is a credit card limit set? 

Although they’ll take your request into account, your provider will ultimately make the final decision on your credit limit. To do so, the providers will assess the following:

  • Income — a regular income will look good and will increase your chances of a good credit rating. It doesn’t hurt if it’s high either. 
  • Employment — if you jump around jobs every 6 months or so, this might not look good. They prefer stability. Part-time, casual, or contractual employees might also find it harder to get a higher credit limit. 
  • Credit history & debt — having a bad credit score and some outstanding debts will lower your chances of getting a good credit limit. 

Changing your credit limit

You can submit a request to raise or lower your credit limit if you’re not satisfied or want to change what you have.

There are valid reasons to change your credit limit, such as:

  • If you keep going over your limit and feel the current credit limit isn’t enough. 
  • You’re spending too much using your credit card. 
  • After reaching a certain point, you want to cut yourself off from spending.

Lower credit limit

Having a lower credit limit means you can have discipline over your spending. As they can be cut off after spending a low amount, this is good for people who struggle with temptation to use their credit cards.

A lower credit limit can be advantageous because:

  • The less money you can borrow, the less debt you can accrue. 
  • You won’t be rejected for increases, which can harm your credit score. 
  • Higher or no limit cards are more likely to come with higher fees. 

Moreover, a higher credit limit can actually have a negative effect on your chances of getting a loan. Even if you’re a responsible card user, lenders might view your credit card limit as potential debt, offering you a less deal or refusing you altogether.

If you liked our “Reasons Why You Should Lower Your Credit Card Limit” and took away some valuable information, check this space regularly for more tips to get out of debt and updates on the best budgeting apps in Australia.