You can get a credit card for many reasons, from building your credit history and having access to credit for emergencies, to earning rewards or having extra travel protections.
But whatever your motivation, your first credit card will likely offer a low credit limit, especially if it’s a student card or secured card. That can not only limit your purchasing power, but also hamper your credit-building efforts by making it tougher to keep your credit utilization in check.
To make the most of a low credit limit (and avoid negative credit marks and fees), you’ll have to pay special attention to your balance and available credit.
Here are a few tips for dealing with a lower credit limit than you’d prefer.
Prioritize credit-building
For most people, the main purpose of getting a credit card for the first time is building credit history and earning a good credit score. And credit cards can do a great job there — as long as you do your part.
To build not just credit history with your first card but positive credit history, you’ll need to practice responsible credit habits, namely paying on time each month and keeping your credit utilization in check. The latter is where a having low credit limit can be especially challenging.
Keep your balances low
Your credit utilization ratio is the amount of credit you have available to make purchases compared to the amount you’re using. For example, if your credit card has a $1,000 limit and you carry a $750 balance on that card, your credit utilization is 75 percent.
When it comes to your credit score, the lower your credit utilization the better. One rule of thumb says you should try to keep your credit utilization under 30 percent if you’re trying to improve your score.
But a low credit limit can make that tough.
Imagine you have only a $300 starting credit limit (a common limit on an unsecured card available with limited or poor credit). If you wanted to keep credit utilization under 30 percent, you’d only be able to carry a balance of $90 or less. That may not be enough to even cover everyday expenses like groceries and gas in a given month, much less any larger purchase.
A few more examples of what 30 percent or less looks like based on common credit limit amounts:
- $200 — If your credit limit is $200, then your balance needs to stay at $60 or less.
- $500 — When you have a credit limit of $500, ideally your balance is $150 or less.
- $1,000 —If your credit line is $1,000, this means you should aim for a balance of $300 or less to maintain your credit utilization.
Credit utilization makes up about 30 percent of your FICO credit score, so keeping utilization in check should be one of your top priorities when managing your first credit card. If you regularly max out your low credit limit, you run the risk of establishing a pattern of high credit utilization and damaging your score.
To avoid problems with credit utilization, consider only using your card to cover small purchases you can pay off quickly (if not immediately). For example, you could use your credit card to pay for a single streaming service subscription each month and stick with cash or debit cards for all other purchases.
This strategy will allow you to show you can manage using your card for purchases while avoiding large balances and a high credit utilization ratio. It also makes it easier to ensure you can pay off your balance on time — another key aspect of credit building.
Pay on time
Along with helping you maintain low credit utilization, paying your entire card balance on time each month has a number of benefits.
Paying on time and in full not only helps you avoid costly interest charges from carrying over a balance or expensive fees (such as late payment fees or fees for going over your credit limit), but also positively contributes to your credit score by showing positive payment history.
In a way, then, a low credit limit on your first credit card may be a bit of a blessing in disguise. If you only have so much available credit, you’re less likely to rack up an insurmountable balance and struggle to pay on time and in the face of mounting interest charges.
You can put a few guardrails in place to help you stay on track with your payments, such as:
- Set up automatic payments. You can avoid late payment fees or penalty APRs (a penalty interest rate the credit card issuer charges if you violate any of the terms and conditions) by setting up auto pay. Most credit card issuers offer this option online or through the app and you can select a date that falls well before your due date.
- Add it to your calendar. Another option is to set a reminder on your own calendar and then make the payment yourself. You can take it a step further by adding more than one reminder to ensure your budget can handle the payment prior to the payment due date.
- Choose a better payment date. You can also request a payment due date that works better for your finances, such as on the 15th of every month if you know you receive a paycheck on or around the date. You can typically change the date online or simply call the credit card company and make the request.
When are balances reported to credit bureaus?
Each month the credit card issuer reports your payment activity to the three major credit bureaus — Experian, Equifax and TransUnion. The exact date when this happens depends on the credit card company, but it isn’t always aligned with your billing cycles. If you’re unsure when this date occurs then you can check your card’s terms and conditions or contact the credit card company.
If the issuer always reports balances on the fifth of a month, it would serve you well to make sure your card balance is at its lowest point before then, even if your due date isn’t for several days after that.
Not only does the company report when you made the payment (if it was within 30 days, 60 days, 90 days, etc.), but it also shares what your current balance is. Whatever your balance is on that day is what’s reported to the bureaus, which is why paying off your balance or making a payment before the end of a billing cycle can positively affect your credit score.
Focus on everyday rewards
The rewards programs offered by credit card issuers can be quite tempting, and it’s fine to rack up a few points or cash back dollars along the way.
But don’t let earning rewards distract you from your primary goal of establishing a healthy credit history. If you spend more simply to earn rewards, you run the risk of increasing that credit utilization ratio or getting into a habit of spending beyond your means.
Make a budget and stick to it
With the increased costs of everyday items, it can definitely be challenging to stay within a budget. However, if you do make a budget for how much you can spend with your credit card and pay back in full each month, then it will help you maintain a firm handle on your credit card balance.
Don’t plan to spend all the way to the credit limit. Instead, plan your credit card purchases and spend only what you’ve budgeted on your card each month. That way you stay well away from your low credit limit and continue to show a healthy history of borrowing and paying back your debts on time, while living within your means.
What happens if I make a mistake?
Sometimes life happens and you either miss a payment or go over your credit limit. While it’s not an ideal situation, you do have a few options. For starters, if you’re concerned about potentially going over your credit limit then you can adjust your card settings to automatically decline transactions if you’ve reached the limit.
If you do go above your credit limit or miss a payment then it may be worth contacting the credit card issuer. You can explain any circumstances that may have contributed to going over the limit or missing payment. While not guaranteed, it’s possible the credit card issuer will waive any fees, especially if you have a history of on-time payments.
Once you’ve made multiple on-time payments, then you can eventually call and request a credit line increase. Not only does this give you more wiggle room for your access to credit, it may lower your credit utilization (assuming you don’t use all of your credit), which can positively impact your credit score or help you get a better credit card in the future.
The bottom line
Managing your credit card limit, no matter how low it is, can have a positive impact on both your personal finances and credit score. Staying under your credit limit can help you avoid costly fees, and paying on-time can lead to credit line increases in the future. While it can be somewhat frustrating at times to have a lower credit limit, you can use it as a credit building tool for greater access to credit down the road.
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