How Much Credit Limit to Use Without Damaging Credit Score

by : Court Tuttle

When it comes to your credit, there is a gray area in which you can either decrease your score, or you can use it to your advantage and improve your score. This grey area is called your credit limit.

How high can you spend within your limit before it starts to damage your credit rating? How high should you set your spending boundaries so that you can keep a good credit reputation? Is it alright to go over the limit, just a little bit?

Here are a few pointers that will help you know how high you should set your credit limit, and how spending within that limit can either help or hurt your credit score.

1. Keep your credit limits low enough to keep control.
Exceeding your credit limit is bad for your score, but it is also unwise to set your limit too high. If you set your bounds too high, you may be tempted to see if you can reach those bounds, even if you don't go over.

Spending so much money, even if it is within the perameter, can be difficult to pay back, creating the possibility of late payments. This shows that you are not responsible and cannot pay your debts, which will cause your credit score to drop. It is important to keep your credit limits low enough that if you ever got to the maximum, you could still pay back what you owe, but do not set your credit limit so low that it will be difficult not to surpass it.

2. Get about half way to your limit, then pay it all off. Paying off your credit cards once you have hit the 50% mark will be beneficial to your credit rating and you. You will be able to more easily pay your debts off if you do not let them pile up, and you run less of a risk of exceeding your limit if you do not let yourself spend beyond half.

3. Exceeding your limit damages your credit score, no matter what. Sometimes we get tempted to spend beyond our income. That is where credit comes in.

It helps us to pay for things now that we could not afford for years if we had to come up with cold hard cash. But spending beyond our credit limits will only create even more debt and a plunging credit score. If you were to get approved by the credit card company to exceed your limit, you may be excused from having to raise your interest rates, but you would not be exempt from the damage that would be done to your credit score.

Your credit score is based on how well you can hold to your original agreement, which reflects how well you will be able to pay off the debt that you have taken responsibility for. So going over the limit will still hurt your credit rating, whether it is approved by the credit card company or not.