When you’re approved for a new credit card, the issuer determines the credit limit for your account. Many issuers use information from your credit report to calculate your credit limit, while others preset a credit limit that all new cardholders are granted.
People with higher credit scores and incomes are more likely to be able to obtain higher credit limits because they are viewed as lower potential credit risks. After all, a high credit score correlates with a history of on-time payments and the ability to repay debts.
Want to learn more? Learn how credit limits work, how credit card issuers calculate them, and how to increase your credit card limit quickly.
What is the credit card limit?
A credit card limit is the total amount that can be charged to your credit card. For example, if your credit card limit is $5,000, you can carry up to $5,000 in balance on your credit card. Your credit card limit includes both new purchases and balance transfers, but also other transactions that debit your credit line, such as cash withdrawals. Annual fees are also charged from your credit line total.
According to 2023 data from Experian, the average credit card limit is roughly $29,855 per American. This figure represents the total amount of credit available to Americans across all their credit card accounts, not the limit per card. Generally, credit limits range from $500 to $10,000 per card. However, many credit cards for people with bad credit offer lower credit limits in exchange for the opportunity to rebuild your credit score.
How is my credit limit determined?
Your credit limit is calculated in one of three ways. In some cases, you’ll be given a predetermined credit limit. In other cases, your credit limit will be determined based on your credit history and credit score. In some cases, your credit card issuer will do a more in-depth analysis of your credit history, take into account reasons why you may be a potential credit risk, and calculate the credit limit you currently receive on other cards.
Credit-Based Limits
Many credit card companies use your credit score as a guide when determining your card limit, which means factors like your payment history, credit utilization ratio, length of credit history, credit mix, and recent inquiries will affect your new card limit. Issuers may also take into account your household income, employment, and monthly expenses.
Pre-set credit limits
Some credit card issuers offer credit cards with preset limits — for example, an entry-level credit card may have a limit of $500, while a premium credit card may have a limit of $5,000.
“It’s not a very personal decision,” says Eric Lindeen, a former senior marketing consultant at CRM Northwest Inc.
If you feel like your limit is unusually high or low, it’s not a reflection of who you are as a consumer — you may have simply applied for the wrong card.
Eric Lindeen
What if you’re not happy with your credit card’s stated credit limit? Lindeen suggests asking your card issuer to raise it. “Some issuers give you some leeway, but you can’t expect to get more than a 10-20% increase,” he explains.
Customized Credit Limits
Some credit card issuers use multiple variables to create a customized credit limit for each new applicant, which allows the credit card issuer to minimize their risk when issuing a new line of credit.
According to Lindeen, some issuers create a grid system to calculate your credit limit by comparing several different types of scores, such as your credit score and bankruptcy score, while other issuers consider your income or debt-to-income ratio when determining your credit limit.
“Some issuers may also take into account limits on other credit cards listed on your credit report,” says John Ulzheimer, a nationally known credit reporting expert formerly with FICO and Equifax.
What happens if I try to spend more than my credit limit?
Thinking about spending beyond your credit card limit? Think again. In most cases, if you try to spend beyond your credit card limit, the transaction will be declined. Some credit card issuers used to allow over-limit transactions in exchange for a high over-limit fee, but this practice has been largely phased out.
It’s important to remember that the closer your balances are to your total credit limit, the worse your credit score will be. The amount of available credit you currently have makes up 30 percent of your FICO credit score, so reaching your credit card limits can have a serious negative impact on your credit score.
How to increase your credit limit
Increasing your credit limit has many benefits. Not only does it increase your purchasing power, it also gives you the opportunity to improve your credit score by increasing the amount of credit you have available and lowering your credit utilization ratio.
There are two ways to increase your credit limit: you can wait for your credit card issuer to offer you a higher credit limit, or you can request a credit limit increase yourself.
Let’s take a closer look at both options.
Wait until your credit card issuer offers you a higher limit
If you’ve developed good credit habits, your credit card issuer may be willing to offer you a higher credit limit: “Once you’ve had the card for a while, the issuer will likely adjust the limit based on your usage patterns,” Ulzheimer says.
These adjustments may result in an increase in your credit limit, but they may also result in a decrease, depending on how you use your credit card. Credit card issuers systematically review accounts and obtain cardholder credit reports to assess your current credit behavior and potential credit risk.
Request a credit limit increase
If you don’t want to wait for your credit card issuer to offer you a limit increase, you can always apply for one yourself. Many credit card issuers allow you to apply for a limit increase through your online account or the issuer’s mobile app. In other cases, consumers can call the issuer themselves to request an increase.
If you’re applying for a credit limit increase, be sure to tell your credit card issuer about any recent changes in your financial situation that may affect their decision, such as an increase in annual income or a recent improvement in your credit score.
“If you have a history of on-time payments and low balances, credit card issuers are more likely to grant you an increase as a ‘sign of good faith,'” Lindeen explains. But there’s no need to call if your payments are late, and you shouldn’t ask for a credit limit increase if your current credit limit is maxed out.
Conclusion
How do issuers determine credit card limits? Some credit card issuers offer a preset limit to all cardholders who apply. Other credit card issuers use a combination of factors, including your credit history and credit score, to determine your credit limit.
How do I increase my credit limit? In many cases, you can request a credit limit increase by filling out an online form or calling your credit card’s customer service department. Or, you can simply develop good credit habits and wait for your issuer to offer you a higher credit limit.
Looking for a card that starts with a high credit limit? Check out Bankrate’s list of the best high-cost credit cards.
