Manage your spending within your credit limit

Know your limit and use these tips to stay in control

Many credit cards come with a pre-set total credit line, but that doesn’t mean you should spend the full amount. What’s right for you will depend on your financial goals and spending habits. Ask yourself these questions to figure out how to manage your spending to the total credit line you have.

1. What are my spending habits?

• Are you tempted by every “sale” sign? Do you have a basement full of last year’s gadgets? If so, your total credit line may be too much of a temptation. It may seem obvious, but remember that everything you charge to your card needs to be paid back.
• If you have your spending firmly under control and are able to pay your balance off each month, you are successfully managing within your total credit line.

2. How do I manage my credit card bills?

• Review your credit card statements from the last 12 months. How much did you spend, and on what? How much of your line of credit did you use? Check that you stay within your budget and your total credit line. (Some credit card companies even provide you with a convenient annual overview of your spending.)
• How many times did you carry an outstanding balance from the previous month? If you have an outstanding balance, remember that you are paying interest on that balance each month.
• Track your purchases, as these can add up quickly. Read your credit card statement each month to make sure you have enough available in your total credit line for additional purchases and interest charges. 

3. What are some benefits of a higher total credit line?

• If your spending is under control, a high total credit line can provide a welcome safety margin for unexpected or emergency expenses. However, if you think the higher total credit line will tempt you to charge more than you can afford, you should maintain a lower, more manageable line.
• A higher total credit line helps you take advantage of rewards programs. You can earn points for your everyday purchases without worrying about going over your total credit line. Just be sure you can pay the balance in full each month so you can avoid interest charges.

4. How does my total credit line affect my credit score?

• Part of your score is determined by how much of your credit you use: the less you use, the higher your score. On a credit card, this is the size of your balance compared to your total credit line.
• A higher total credit line can help your credit score, but only if your charges don’t rise to match it. Aim to keep your credit card balance at 50% or less of your available total credit line. For more information on how your credit score is calculated, read the article, How to understand your credit report and credit score.

Considering these questions can help you make the best choices for you. Like all financial tools, the better you manage your total credit line, the better off you'll be.

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