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How Do They Decide What My Credit Card Limit Should Be?

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First you cross your fingers hoping you’ll get approved for the credit card you want. Then you cross them again hoping the credit limit will be generous enough to get you what you want. Maybe you need it to pay for some expensive dental work you have to get done. Or perhaps you are applying for a 0% balance-transfer offer so you can transfer debt from other, higher-interest cards. Either way, the credit limit they give you is a few hundred, or a few thousand dollars short of what you need — and you have no idea why. How did they even come up with that number?

Credit card issuers will tell you what factors they consider when they assign a credit limit, but exactly how they calculate it remains proprietary. In fact, it’s so complex, credit card issuers might not be able to explain it if they wanted to, says credit scoring expert Barry Paperno. Not a single card issuer we reached out to for this story could (or would) give us specific information about how they determine credit limits.

In every case, your credit score will have a great deal to do with whether you are approved, and for how much. If you’ve had credit before and handled it well, a card issuer is more likely to approve your application. But that is not the whole story. Your income comes into play, and so do your current financial obligations, such as rent and a car loan, and the amount of credit available to you through other cards. Part of the equation is behavioral: What do they think you are likely to do if you have more credit extended?

Why Your Credit Limit Matters So Much

While it feels great to get approved for a new account, pay attention to the credit limit. Balances higher than 20% to 25% of your available credit can hurt your credit scores. (Though in the case of a balance transfer you’ll have to weigh that against the interest you’ll save by getting out from under a high interest rate. And in the case of essential bills, like dental or medical bills, you may have to accept a temporary hit to your credit in order to pay the bill and avoid having an account turned over to collections.)

If you believe the credit limit you were assigned is too low, you can call the issuer and ask for a higher one. It can help help if you can justify your request with some information the issuer did not have when you applied (“I just mailed in my last car payment” or “My spouse has returned to work, and now our household income is higher than the number on the application”). It’s smart to consider that your credit limit can also be lowered if you give your lender reason to believe you may not be able to handle your current limit.

Sometimes, however, you can get them to change their mind simply by sweetening the pot and letting them know you’ll bring over a balance from another card or charge a significant purchase. Issuers want cardholders who pay interest on balances; after all, that’s how they make money.

Sometimes your credit card issuer may raise your limit without your requesting it, too. That can happen after a period of paying on time and keeping balances low. Some people worry that perhaps there is a downside to this, and wonder if they should ask that the lower limit be reinstated. Generally the answer is no. Assuming your credit card usage stays the same, you’ll be using a smaller percentage of your available credit, and that can only help your score. (It’s a good idea to keep your credit utilization to less than 20% to 25% of your credit limit; less than 10% is ideal.)

So, sadly, it’s generally not possible to know exactly what your credit limit will be ahead of time. In the meantime, you can control some factors that may affect the issuer’s decision. It’s important to maintain (or work toward) good credit. You can check your progress with a free credit report summary, updated every 30 days, on Credit.com, or you may find free scores on your monthly credit card statement. You should be sure you are comparing the same score from month to month, because many scoring models are used, and you want to be sure you look at the same one so that changes are meaningful. The other thing you can do is to check your free annual credit reports to make sure the information there is accurate (and to dispute any that is not). Because your scores are calculated from information in your credit reports, you want to make sure it’s correct and that your information has not been mixed in with anyone else’s.

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  • heavyw8t

    Also be aware that if this is a credit card that has an annual fee and an application fee, and your initial limit is low, like $200 for example) your first statement may show up with very little credit available. In my early rebuilding stages I researched one card that had a $79 application fee and a $39 annual fee, and the limit was $200. That meant the by the time I had the card in my hand, I owed them $118, leaving me with available credit of $82, and 60% available credit in use when the card got reported to the bureaus. Be VERY aware of this kind of card.

    • Eddie J

      I would pass on a card that had those terms. It is hurting you not helping you. If that’s all you can qualify for, forget it. Instead, go to a regular bank and get a “secured” credit card where you put up whatever amount you want your limit to be or you can afford. After you make regular on-time payments for awhile (which are reported), the bank may offer to make it un-secured and raise your limit and you won’t have to have your money tied up anymore.

    • Ray

      That so wrong. Thanks for the heads up heavyw8t!!!!

  • John Muelchi

    And just how do the credit people get away with hidding the methods of calculating credit limits. I think by lobbying the stinkers in Congress. Ask Hillary and Bill how it’s done.

    • Eddie J

      Hillary and Bill aren’t in Congress. Ask the republicans who run Congress.

  • Sandibeach22

    I have been using all of your suggestions and I recently received my first decent credit limit of 20k from Capital One! I’ve also seen some with 50k limits along with 20k limits from them in just one day! I was always using my debit card and have transferred all of my spending to my cc’s. The rewards are great & I’m hoping one day for a super limit but very grateful for what I have. Thanks for all the knowledge.

    • http://www.credit.com/ Credit.com Credit Experts

      Glad it’s useful to you. And congratulations on keeping your credit in good enough shape to qualify for the cards you want.

  • John Muelchi

    Nice try. You know exactly what I mean.

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