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Credit limit plays an important role for millions of credit card users across the country. It’s a factor that influences credit card use and, by its role in determining credit utilization, your credit score as a whole. So understanding your credit limit and how a credit card issuer sets it is very important. But what exactly is a credit limit, and how is it determined by a credit card issuer?
What Is Credit Limit?
A credit card limit is the maximum amount of credit available for a customer to use. Virtually all credit-related products, from credit cards to lines of credit, have a limit in place to ensure users don’t borrow beyond their means. This limit can range from several hundred dollars to tens of thousands of dollars. In the United States, the average credit cardholder has a limit of just over $22,000, based on a combined total of all credit cards.
When you’re approved for a new credit card, you’re offered a specific interest rate and credit limit. For example, if you have a moderate income and short credit history, you might be offered a higher interest rate and a relatively low limit, such as $1,000. Someone with a more substantial income and a long credit history may receive a higher limit, such as $10,000.
Some lending products have a maximum limit in place regardless of the user. Others offer variable limits based on personal circumstances.
In many cases, there’s no way to use a credit line in excess of the limit. In such cases, attempting to make a purchase that brings your card above the limit results in the transaction being denied. In other cases, you might be able to purchase above the limit, but you’ll be charged a fee and may be charged an additional fee for every billing cycle you’re above the limit.
Why Credit Limit Matters
Credit limit serves to limit purchases based on issuer standards, but it also plays a role in credit utilization. That’s one of the key components in calculating your credit score.
If you regularly spend $500 a month on your credit card and your limit is only $1,000, that’s a credit utilization ratio of 50%. However, if your limit is $10,000, that equates to a ratio of just 5%.
Bottom line? The more available credit you have, the better your credit utilization looks—provided you spend responsibly.
How Is Credit Limit Determined?
Credit limits can vary based on many factors, from income to credit score. But it’s not always clear how it’s calculated.
In general, credit card companies aren’t willing to discuss exact algorithms used to determine limits, but most do share the general criteria. How these factors are weighted vary from bank to bank, but most take the following into account:
- Household income
- Debt-to-income ratio
- Credit score
- Credit history
- Credit length
- Repayment history
- Other financial obligations, such as mortgage or car payments
What Should My Credit Limit Be?
There’s no right or wrong limit. Limits are imposed on a personalized basis, and what’s right for your account depends on your personal financial situation and the lender’s own preferences and processes.
There’s also no true average credit limit by income. While those who make more and have available cash flow to cover higher obligations often receive higher limits, this isn’t universal. For example, someone with a high income but a history of bankruptcy isn’t going to get the same offer as someone with modest income but stellar credit.
If you think you should have a higher credit limit, it’s possible to ask for an increase by calling your credit card company. Keep in mind, this may result in a hard inquiry on your credit. Some banks also send periodic emails asking for updated financial information to guide credit limit decisions.
However, this is usually only a successful strategy when life circumstances, such as an increase in income or a boost in credit score, play a contributing role. To ensure the highest possible credit limit, keep your credit utilization low, pay all obligations on time and spend responsibly.
Credit Cards for Various Credit Limit Needs
Credit cards come in all shapes and sizes, from general rewards cards to specific store-branded products. However, not all cards are made equal. Here are some cards to consider when you’re looking for a high limit or to build credit so you can get a higher limit.
Cards With High or Unlimited Limits
Most cards have a maximum limit allowable, but some offer extremely high or unlimited limits that let cardholders spend indiscriminately. Be aware that these kinds of cards are usually only available to applicants with high income and excellent credit.
Blue Cash Preferred® Card from American Express
American Express is known for high limits and big perks for borrowers who qualify for premium products, and the Cash Preferred Card is no exception. It offers 6% cash back at supermarkets and when you use the card for streaming services. You can get 3% cash back at U.S. gas stations.
Cards to Build Credit
If you need a high limit but are held back by a short credit history or a low score, that’s okay. There are plenty of ways to bring your score up, including the use of a secured credit card. Secured cards use a cash deposit as collateral, giving those with compromised credit a chance to demonstrate responsible account management and potentially boost their scores.
OpenSky® Secured Visa® Credit Card
OpenSky® Secured Visa® Credit Card
- No credit check to apply. Zero credit risk to apply!
- Looking to build or rebuild your credit? 2/3 of cardholders receive a 48+ point improvement after making 3 on-time payments
- Extend your $200 credit line by getting considered for an unsecured credit line increase after 6 months, no additional deposit required!
- Get free monthly access to your FICO score in our mobile application
- Build your credit history across 3 major credit reporting agencies: Experian, Equifax, and Transunion
- Add to your mobile wallet and make purchases using Apple Pay, Samsung Pay and Google Pay
- Fund your card with a low $200 refundable security deposit to get a $200 credit line
- Apply in less than 5 minutes with our mobile first application
- Choose the due date that fits your schedule with flexible payment dates
- Join over 1.2 million cardholders who’ve used OpenSky to build their credit
The OpenSky® Secured Visa® Credit Card is an excellent product for those hoping to build credit. It doesn’t always require a credit check, and the credit limit is based on a refundable deposit amount. You won’t get a super high credit limit with this type of card, but it can be a tool to help you build your credit score to support higher limits in the future.
First Progress Platinum Elite Mastercard® Secured Credit Card
The First Progress Platinum Elite Mastercard® Secured Credit Card
- Choose your own credit line - $200 to $2000 – based on your security deposit
- Build your credit score.¹ Reports to all 3 credit bureaus
- No minimum credit score required for approval!
- ¹ Cardholders who keep their balance low and pay their credit card bill on time every month typically do see an increase in their credit score.
- Secured Cards are a great way to start establishing credit for people with low/no credit scores¹
- Past credit issues shouldn’t prevent you from getting a credit card with great benefits & rewards!
- Accepted wherever Mastercard® is accepted
For those who need credit but don’t qualify for standard cards, the First Progress Platinum Elite Mastercard® Secured Credit Card is a compelling opportunity. You can apply in just a few moments without a hard credit inquiry. You get a $200 to $2,000 credit limit, depending on the total of your fully refundable deposit.
Use Your Credit Limit Wisely
Credit cards can be an excellent tool, but how you use them can contribute to the options available to you. Everything from interest rate to credit limit can vary based on personal information. If you’re not happy with your credit limit, improving your score can be an important part of seeing higher caps.
If you want to raise your score and influence your credit limit, Credit.com can help with tools and resources that help you make good decisions for a positive impact on your credit. Check out ExtraCredit, a product that helps you get a full understanding of your credit score so you know how to improve it.
