How to figure out your ideal credit limit, according to financial experts

With any credit card, there's typically a limit to how much you can spend. And experts say choosing the right limit can play an important role in maintaining good credit health.

Set based on factors like your income, credit history and ability to repay, your credit limit is the maximum amount of money you can borrow on a credit card or account.

"Generally speaking, more credit is better, as long as you don't use it as a crutch to overspend and take on too much debt," says Ted Rossman, a senior industry analyst at Bankrate who focuses on the credit industry.

Experts often recommend seeking out a limit that's well above how much you'll spend in a month to maximize your credit score. Your "ideal" credit limit will depend on your personal spending habits and preferences, Rossman says.

Too keep your credit score high, it's best to use only 10% to 30% of your available credit and pay your statements off in full every month, says Dean Tsantes, a certified financial planner and financial advisor at VLP Financial Advisors in Vienna, Virginia.

The percentage of your available credit that you're using is a metric known as credit utilization. Keeping utilization low shows lenders you manage credit responsibly, which helps improve your credit score, while hitting that limit every month signals to lenders that you may be over-reliant on credit and a higher lending risk, thus lowering your score, says Rossman.

Working backward from the an ideal credit utilization of 10% to 30%, if you typically spend around $5,000 a month on your card, you should have a limit of $50,000, Tsantes says. By the same metric, if you typically spend around $2,500 on your card, $25,000 could be a good limit, he adds.

"The idea is that you'll never be close to hitting that limit," Tsantes says. Having a seemingly high limit is there not as money available to use, but as a buffer to keep your balance well below your maximum and your credit utilization low.

It may also be smart to consult a trusted financial professional who can help you determine the amount of credit that makes sense for you.

Credit card debt can be costly and hard to pay off. So, if you know you're likely to view your credit limit as the amount you can spend each month, it may be wiser to stick to a limit that covers just the essentials with a small buffer, Rossman says.

"You definitely don't want to be hitting or approaching that limit or spending more than you can afford to pay back," he says. "Even though it's good for your credit score to have more credit, if you're going to use that as a way to overspend, that could be a danger."

However, even with a lower limit, it's still possible to maintain a low credit utilization ratio, Rossman says. If your line of credit is just enough to cover your essentials and you're getting close to your limit every month, there are "workarounds" to lower your utilization, like making extra payments throughout the month to keep your usage under 30%.

To increase your credit limit, you can either request a credit limit increase for an existing card or open a new card with a new line of credit, Rossman says.

Start by checking with your existing credit card issuer to see if requesting a credit limit increase will trigger a hard or soft credit inquiry, he says. Hard inquiries can cause a small, temporary dip in your credit score, while a soft inquiry is a routine or informational check that does not affect your credit score.

If your issuer will use a soft inquiry, increasing the limit on an existing card can boost available credit and lower your credit utilization without hurting your score, Rossman says.

If your issuer is going to run a hard inquiry, it may be more strategic to open a new credit card with a different set of rewards and benefits, Rossman says. That way, you can have more options to maximize benefits across your cards, he says.

Although increasing your credit limit can raise your spending power, avoid treating that extra credit as more money or an emergency fund for "desperate times," Rossman says. Spending more than you can afford on a credit card can lead to high-interest debt that becomes difficult to repay, he says, especially if your financial situation is already strained.

"Having a credit card with a $5,000 limit — yes, that could help you in a pinch — but that's not the same as having $5,000 in the bank," Rossman says. "This is debt. It can be very expensive debt."

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