Key takeaways

  • Paying your credit card on-time each month offers an effective way to build your credit.
  • Paying off your balance in full each month keeps your credit utilization in check and shows responsible management of your credit.
  • Positively managing your lower credit limit can lead to a credit line increase in the future.

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 in place. Whatever your motivation, your first credit card often has a lower credit limit, which is especially common among student cards or secured cards (but not always). Here are a few tips for dealing with a lower credit limit than you’d prefer.

View the card as a credit-building tool

First and foremost, first credit cards should be primarily about setting a foundation for long-term financial success. They’re great tools to take advantage of because they can show a pattern of responsible payments each month. On the other hand, it’s a wise idea not to reach for them for every purchase either, so you avoid maxing out your credit line or risking not being able to pay your balance in full each month.

Your top priority should be to use the card and pay it off each billing cycle in order to establish a pattern of using credit and paying it off.

If you instead max out your low credit limit every month, you run the risk of establishing a pattern of high credit utilization. Your credit utilization ratio is the amount of credit available to you compared to the amount you’re using. If you have one credit card with a $1,000 limit and you carry a $750 balance on that card, your credit utilization is 75 percent (credit utilization makes up about 30 percent of your FICO credit score).

Should you try to earn 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.

Keep your balances low

The biggest problem with low credit limits is managing your credit utilization. The amount you owe, or your credit utilization, is a crucial aspect of your overall credit journey because it’s one of the main factors contributing to your credit score. When you have a low credit limit then it can severely impact your credit utilization because it’s easier for you to use more of your credit line.

The ideal percentage for amounts owed is 30 percent or less, meaning you owe 30 percent or less of your available credit. Here are 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.

Pay the entire amount on time

Paying the entire balance each month and on time has a number of benefits. Not only do 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), it also positively contributes to your credit score by showing a lower credit utilization. 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.

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.