What Is a Credit Limit?
If your credit card says you have a $5,000 credit limit, that doesn’t mean you owe $5,000. It means the card company has given you access to up to $5,000 in credit on that account.
So if you’ve spent $1,200 and haven’t paid it back yet, your balance is $1,200. You’d generally still have $3,800 available to use. The $5,000 is the credit limit, and that number usually stays the same while your balance goes up and down as you use the card, make payments, and accrue interest.
The Limit Doesn’t Change Every Time You Use the Card
If you make a $200 purchase, you haven’t lowered your credit limit by $200. You’ve used $200 of the credit that was available to you. Your balance can also grow when interest is added, leaving you with less available credit even though you didn’t make another purchase.
When you make a payment, paying down your balance generally makes that credit available to use again.
Through all of that, the credit limit itself stays the same unless the card issuer changes it.
The Card Issuer Sets the Limit
The card issuer is the one that decides what your credit limit is, so it won’t necessarily be the same from one card to another. The issuer can also raise or lower it later.
And that number isn’t telling you how much you’re expected to spend. If your credit limit is $5,000, it just means that’s how much credit the issuer has made available on that account.
What Happens When You Reach the Limit
This is where the phrase “maxing out a credit card” comes from. If you have a $5,000 credit limit and your balance is getting close to $5,000, you’re getting close to maxing out the card.
At that point, you don’t have much available credit left. If you try to make a purchase that’s more than what you have available, it may be declined, although exactly what happens can depend on the card issuer and the account.
So when you see a credit limit on your account, think of it as the total amount of credit the card issuer has made available to you. How much of that credit you still have available depends on how much you’re currently using.