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How to live with your first credit card's limit

Paying on time and paying your full balance

Paying on time and paying your full balance each month are the best ways to develop a good credit history, experts say.    Credit: Getty Images/iStockphoto/AleksandarGeorgiev

The thrill of getting approved for your first credit card might wear off — at least a little — when you see the news punctuating that congratulatory message: Your new credit limit is lower than you expected.

So the mental math begins. Can you shop for groceries for a full month without flying too close to your limit of, say, $500? Is it even possible to pay for a plane ticket? If the answer is a resounding "no," it's time to hash out a new game plan.

Instead of trying to use your credit card for everyday purchases, focus on establishing a history of on-time payments and responsible borrowing. The positive history you build now could pay off in the years ahead.

Pay on time and pay in full

As a first-time credit card applicant, your credit history up until now might be a whole lot of nothing. So it's not surprising that issuers might start you out with a low limit.

Banks are "just being careful because they don't know who you are," says Naeem Siddiqi, an author of books on credit scoring and the director of credit scoring and decisioning at SAS, a company that provides major banks with analytics software for making credit decisions.

The remedy: Use your credit card to build a positive credit history by making it a priority to pay every credit card bill on time and in full.

Missing payments or paying only the minimum could thwart your progress toward establishing a positive credit history — and cause you to rack up interest charges and penalty fees.

Keep your balances low

It's up to you to manage your low credit limit. In part, that means keeping your balances low. Using too much of your available credit  can sink your credit scores in a hurry.

To keep your scores healthy, a rule of thumb is to use no more than 30 percent of your credit card's limit at all times. On a card with a $200 limit, for example, that would mean keeping your balance below $60. The less of your limit you use, the better. Here's how you can keep your balance low:

- Make multiple payments each month. Your credit utilization ratio is based on what your balances are when your issuer reports them to the credit bureaus each month. Suppose you spend $80 on groceries on your card, putting you closer to your $200 limit. If you pay that card off right after you make the purchase, instead of waiting for the bill, you could lower your balance before your issuer reports to the bureaus.

- Borrow sparingly. Keep in mind that you can build a good credit history simply by charging a pack of gum or cup of coffee each month to your credit card and paying it off in full and on time.

A low credit limit isn't a life sentence. If your limit hasn't been automatically increased after several months of responsible borrowing, ask for a higher limit. It helps your case if you've been paying on time and borrowing responsibly for months, or if your income recently increased. 

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