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Also referred to as a line of credit, it’s the maximum amount you can spend before you need to pay off a portion of your credit card’s balance. Now, your credit limit can range from a few hundred dollars to tens of thousands of dollars, it all depends on the type of credit card you have and your credit profile. Your credit limits are super important, not only because they affect how much you can spend, but more importantly, because they affect your credit scores.
There’s a number of different reasons why your credit limit is important. When lenders begin evaluating your creditworthiness, they will look at your credit scores and credit reports. They may check one, they may check all 3 of the major credit bureaus, which consist of TransUnion, Experian and Equifax.
Your credit limits play a key role in where your credit scores fall in line.
If you’re paying all of your bills on time, the next biggest factor focusing on your credit score would be your credit utilization. Just in case you don’t know what that is, it refers to the percentage of credit you’re using on your card versus the credit limit you have. If I have a $2,000 credit limit and a balance of $1,000 on that card, I would have a 50 percent credit utilization ratio.