What You Need to Know About Credit Limits

You’ve likely viewed a scene in a movie or TV show where a character goes on an over the top shopping spree. He or she effortlessly swipes a credit card to cover the monstrous cost then leaves the store with more shopping bags than one person can realistically carry. These types of scenes give the impression that you can spend however much you desire when using a credit card. In reality, credit cards don’t offer an endless supply of funds and instead come with a limit of how much you can spend, called the credit limit. Keep reading to learn more about what a credit limit is, how best to use it, and the changes that can occur to your credit limit.

What is a credit limit?

A credit limit is the maximum amount of money that a credit card lender will allow you to borrow. This credit limit, also known as a credit line, is first determined by the lender at the time you open your account. Your limit is determined by your credit history, income, and other factors that may vary by company. The lender may also decide to increase or decrease your limit over the life of the account.

Your current line of credit can be seen by logging into your credit card account online. Each time you make a purchase or a cash advance, you will see the purchase amount or cash advance subtracted from your total limit. The amount left to spend is called your available credit. If you spend all of your available credit, or “max out” your credit card, you won’t be able to make purchases or cash advances with the card until a payment is made, which brings the outstanding credit card balance below its credit limit. 

How much of my credit line should I be using?

Just because you can spend your full credit limit, that doesn’t mean you should. In general, when it comes to credit utilization, lower is better. Credit utilization refers to the amount of credit you’re currently using divided by the total amount of credit you have available. For example, say you have a credit card that currently has a balance of $100, and the credit limit of the card is $200. The credit utilization rate would be 50% ($100 balance divided by $200 limit equals 0.50).

Your credit utilization rate can affect your credit score. According to FICO, amounts owed on student loans, other loans, or credit accounts determine 30% of a FICO Score. If you are utilizing a high percentage of total available credit, it may have a negative effect on your credit score. Not only will utilizing a low percentage of your credit line show that you are good at managing your credit, it will also reduce your chance of building up your credit card debt and will aid you in achieving a good credit score.

How do I increase 1st Financial Bank credit limit?

Sometimes, the credit limit determined when the account was opened just isn’t high enough to meet long-term financial needs and goals. Individuals may seek a higher credit limit in the event that they expect to have higher expenses over the coming months or if they simply wish to improve their credit utilization ratio. For example, college students who have recently graduated may need to increase their credit limit to accommodate for costs associated with their lifestyle change. If you desire a higher credit line, you can request an increase from your credit card issuer.

Alternatively, your issuer may automatically review your account periodically. If your credit report shows you have exhibited responsible credit card usage and payment history on a regular basis and have sufficient income to support a larger credit limit, they may decide to offer you a higher limit as a thank you for your loyalty. High credit limits allow cardholders to have more freedom and security when constructing their budget. However, they also can make it tempting to spend more. As always, use caution when buying items on credit and avoid shopping sprees. If you fear that the credit line increase could potentially get you into financial trouble, you do have the ability to decline the offer.

Can my credit limit decrease? 

Just as easily as a credit card issuer can increase your credit limit, they may decrease it. Issuers can reduce the credit limits of their customers as they may determine. This can happen if the cardmember has not been keeping up on monthly payments and may pose a greater risk of non-payment to the issuer.

In a recession or time of economic uncertainty, such as the pandemic beginning in 2020, earning and spending habits may change, resulting in individuals potentially having to utilize their credit card more than they normally would. During these times, credit card issuers may decide to decrease the credit limits of their existing cardmembers who are not exhibiting positive payment history or using their cards on a regular basis.

For example, it has been reported that several credit card issuers have reduced a number of their cardmember credit limits because of the COVID-19 pandemic. This is done to reduce the risk of financial losses for those credit card companies. Note: 1st Financial Bank USA has not reduced credit limits because of the COVID-19 pandemic as has been reported for other issuers.

Be prepared to adjust your financial habits in the event that the amount of credit you have available to you suddenly decreases. If you find that your credit limit has been decreased, consider reaching out to the issuer. They may be willing to reverse the decision.

What determines a 1st Financial Bank USA credit limit increase or decrease?

Periodically, 1st Financial Bank USA reviews its cardmember accounts. If an account has exhibited positive payment history, it may be granted a 1FBUSA credit line increase. If an account is not automatically selected for an increase, one may be requested by contacting customer service via phone at 1-800-733-1732 or via SecureMail message after signing into your account online.

Understanding the basics of credit limits will give you an advantage when it comes to being a responsible student credit card or secured credit card user. By keeping up good credit practices, like making timely payments in full each month, you’ll be contributing to building your creditworthiness. While it's okay to indulge in treats like ice cream, the latest video game, or a new sweater, it's recommended that you don’t make all your purchases at the same time. Armed with this new knowledge, you’ll now be able to see the reality behind Hollywood’s inaccurate depictions of limitless credit cards and no interest rates.