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A credit card limit is the maximum you can spend on a card before you need to pay the card’s balance. The average credit card credit limit in the U.S. is $30,365, according to the most recent data from Experian. However, credit card limits vary widely. If you’re new to credit, or rebuilding your credit, you may have a significantly lower credit limit. Credit card issuers determine your credit limit by looking at factors like your credit score, payment history, income, credit utilization, and monthly expenses. By understanding exactly what they're looking for, you can increase your chances of getting approved for a higher credit limit. Here's everything you need to know.
Low vs. High Credit Limits
For every credit card account you have, you’ll see your credit limit (also known as your available credit line) on your credit card statement. This is the maximum amount you are allowed to spend using the card. If you’re young and don’t have much credit history, you’re likely to have a lower-than-average credit limit. As you build your credit profile (by making on-time payments and fully paying off your balances), your credit card limit will increase.A low credit limit isn’t necessarily bad, but it can make it hard to pay for large purchases, like furniture or vacations, with credit. lt can also impact your credit utilization score (how much of your available credit you are using at any time), which is part of your credit report and influences your credit scores. Generally, you want to keep credit utilization under 30%, since going over that threshold could negatively affect your credit scores. That means if your credit limit is only $1,000, spending over $300 on the card will result in higher-than-recommended credit utilization.If you have a high credit limit, on the other hand, you’ll be able to make large purchases without worrying about exceeding your spending limit. Higher credit limits also make it easier to keep your credit utilization low. This can have a positive impact on your credit which, in turn, can make it easier to qualify for other loans (like a mortgage or car loan) with favorable rates and terms.
Factors That Determine Your Initial Credit Limit
There are many factors that determine the credit limit you're given when you get approved for a new credit card. The card issuer will look at your employment status and annual salary, as well as your monthly expenses (such as rent, mortgage, and other debt). In addition, they will check your credit reports to see your credit utilization, payment history, debt-to-income ratio, and credit scores. The issuer will use all this information to determine how much credit card debt they think you can manage – or, in other words, your credit limit.Recommended: All You Need to Know About Contactless Credit Cards and Payments
How Is Your Credit Limit Decided by Credit Card Issuers?
Here’s a closer look at the factors that credit card issuers look at when determining your credit limit.
Your Credit Scores
A credit score is a three-digit number, typically between 300 and 850, designed to represent your credit risk, or the likelihood you will pay your bills on time. Credit scores are calculated using sophisticated algorithms based on information in your credit reports. Score ranges will vary, depending on which credit scoring model is being used, but generally follow these guidelines:300-579: Poor580-669: Fair670-739: Good740-799: Very good800-850: ExcellentCredit card issuers will look at your credit scores to determine whether to approve you for a card, as well as what your credit limit will be.
Your Income and Debt-To-Income Ratio (DTI)
Your household income includes not just your employment income, but also that of your spouse, as well as any child support, alimony, investment income, or government benefits you receive. Your debt-to-income ratio is the total amount of debt you have divided by your income. When your debt-to-income ratio is lower, you have more capacity to repay other loans, and the card issuer is likely to grant you a larger credit limit. But if you already have a relatively large amount of debt relative to your income, you’ll likely receive a lower credit limit.
The Card Issuer’s Policies and Goals
The process of determining a cardholder’s credit limit and other credit card terms varies from company to company. While they all generally look at credit scores, history of credit card performance, and income level, each company actually has its own mathematical formula based on its own testing and analysis. For example, some issuers will look at limits that exist on an applicant's other credit cards, while others won’t. The actual formula is proprietary, since it's the way that the credit card company makes its money.
Your History With the Card Issuer
Once you have a credit card, your spending limit on that card will (at least in part) be based on your payment history on that card. If you use your credit card conservatively, make your credit card payments on time, and avoid carrying a balance whenever possible, the issuer will likely reward you by automatically giving you a higher credit limit or inviting you to request one.
Current Economic Conditions
Card issuers don’t approve applications and grant credit limits in a vacuum; they also consider current economic conditions. When times are bad or companies fear the U.S. economy may be headed into a recession, they may tighten cardholders’ credit limits. In good economic times, on the other hand, they may be more likely to offer higher credit limits.
Common Ways to Try to Increase Your Credit Limit
While some aspects of your credit limit are out of your control, there are some things you can do to increase your credit limit.
Update Your Income Information
Your credit card’s credit limit is likely based on the employment and income that you stated when you applied for your card. But if your income has increased since then, or you didn’t state your total household income on your application, then you may want to update this information and request a larger line of credit.
Build Your Credit
As you add positive information (like on-time payments) to your credit reports and build your credit, you will likely qualify for a larger line of credit. Card issuers typically monitor cardholders' credit reports and scores, so building your credit could lead to automatic credit limit increases.
Request an Increase
Credit limit increases aren’t always automatic. Sometimes you often have to ask for them. However, it may be a good idea to wait until your credit scores or income have increased, your rent/housing costs have decreased, and/or you’ve proven your ability to pay on time and use your card responsibly. With some card issuers, you can request a credit limit increases online; with others you will need to call and speak to a representative.
Transfer Your Available Credit
If you hold multiple accounts with the card issuer and need a higher line of credit with a particular account, you may be able transfer credit from one line to another. This can mean a reduction in the line of credit of one account or closing an existing account and transferring all the credit to another account.
The Takeaway
If you’re new to the credit card game, you may have a lower-than-average credit card limit. However, by knowing exactly what numbers card issuers use to calculate your limit – and doing what you can to improve those numbers – you should be able to increase your line of credit. A higher credit limit allows you to put larger purchases on your card and also helps improve your credit utilization ratio, which, in turn, can help you build better credit.If you’re in the market for a new credit card, Lantern by SoFi can help. With our online marketplace, you can shop different types of cards (including credit-building cards and cards for poor credit) and compare multiple credit card offers all in one place.
Frequently Asked Questions
How much is the average credit card limit?
What is considered a high credit card limit?
How is the average credit card limit calculated?
Is a low credit limit bad?
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About the Author
Jason Steele
Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
