What is a credit limit?

A credit limit is the highest amount the credit card’s balance is allowed to reach. If the balance exceeds the credit limit and you try to use your card for a purchase, it’ll likely be declined. If the transaction is accepted, there will almost always be penalties charged. With some banks, you can ask for the overdraft facility to be removed, so the transaction will be refused before you go over your credit limit. If you have a $5,000, this is the maximum you can spend, not your daily transaction limit.

What is a cash advance limit?

When you withdraw money from your credit card, use it to transfer money to your regular bank account, you’re doing a cash advance. The cash advance limit is the maximum amount of cash that you can withdraw or transfer. The cash advance limit is usually calculated as a percentage of the credit limit. There’s no interest-free period for cash advances, so you’ll be charged interest starting immediately and also be hit with a fee on top. Your bank might also see purchases of foreign currency and risky transactions like gambling as a cash advance, too.
Find cards with a lower cash advance rates here.

What is a daily limit?

Just like your regular bank account, you’ll only be able to spend a certain amount each day on your card, whether in one transaction or multiple. The daily limit isn’t necessarily the same as your credit limit and can be a lot lower. You may have put it in place to minimise fraudulent activity on your card or curb impulse spending. With newer anti-fraud tech in place, daily limits are not a must for each provider anymore.

Read next

• Find your next rewards credit card
• Compare some of the best frequent flyer credit cards
• Compare some of the best balance transfer credit cards

Photo source: Shutterstock