What Is a Credit Limit and What Factors Determine It?
A credit limit is the maximum amount of money you can borrow using any form of revolving credit.
When you get a credit card or line of credit, the issuer sets a predetermined limit you may borrow, referred to as your credit limit.
Lenders rely on different factors to determine borrowers’ credit limits, including their credit scores, income and existing debt. Borrowing over this limit may lead to declined transactions as well as other repercussions.
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Credit limit refers to the maximum amount you may spend using a credit card or a line of credit.
Lenders consider aspects such as your creditworthiness and income before assigning credit limits.
Credit limits may increase or decrease over time based on different factors.
What Does Credit Limit Mean?
A credit limit is the maximum amount you may spend using a credit card or a line of credit. Any amount you spend from this limit changes your available credit.
Cardholders may receive different credit limits for the same credit card based on individual factors. For instance, if you’ve just started building your credit history, you may expect to get a relatively low credit limit. If your credit score is relatively high, you’re likely to receive a higher limit.
Keep in mind that knowing your maximum credit limit doesn’t imply that you should use it entirely. It’s crucial to utilize your spending effectively so it can positively impact your creditworthiness.
If you don’t know the credit limit of any of your credit cards or lines of credit, you can usually find it on your statements or through your lender’s online platform. Calling your credit card company’s customer care number is also an option.
What Is a Good Credit Limit?
Good credit limits vary based on different factors. For instance, what might constitute a good credit limit for someone with fair/average credit might seem insufficient for someone with excellent credit. Besides, if you’re new to credit and are looking for your first credit card, you may expect a credit limit as low as $200.
According to numbers released by Experian based on consumer credit data from the second quarter of 2019, the average credit limit of those between 18 and 22 years of age was $8,062. For those aged 23–38, it increased to $20,647. Baby boomers (55–73 years old) accounted for the highest average credit limit at $39,919. The overall average credit limit for consumer credit cards changed from $31,371 in 2019 to $30,365 a year later.
Data released by Equifax shows that the average credit limit for all private label cards issued during June 2021 was $2,166.
What Is a Credit Limit Example?
If you have a credit card with a $1,000 credit limit and you’ve used it to spend $300, your available credit drops to $700. If, at this stage, you make a $100 payment toward your credit card bill, your available credit increases to $800. However, your overall credit limit remains the same at $1,000. While your credit limit stays the same at most times, it is subject to change under certain scenarios.
How much of your available credit you use has a direct bearing on your credit utilization ratio, which, in turn, affects your credit score. Your credit utilization ratio is the percentage of total available credit you’ve used — ideally, it should be 30% or lower.
As an example of how to calculate credit utilization ratio: If all your credit limits added together total $4,000 and you’ve spent $3,000 of it, your credit utilization ratio is 75%. To get it to 30%, you’d need to bring down your outstanding balances to $1,200.
How Is Your Credit Limit Decided?
Lenders consider different factors when assigning credit limits. For instance, someone as old as you and who earns the same income might qualify for a different credit card limit than you based on individual factors, like creditworthiness, payment history, income, required minimum payments and credit utilization ratio.
Your credit score gives lenders an indication of how well you’ve managed your credit so far. People with good to excellent credit scores stand a better chance to qualify for credit cards with high limits than those with average creditworthiness. In addition, older people with longer, well-maintained credit histories typically get higher credit limits than younger people.
This demonstrates how consistently you pay your bills on time.
Income and expenses
Your income and expenses indicate how much credit you might be able to pay off comfortably. For instance, if you have a sizable portion of your income left after accounting for your regular expenses, you may expect a lender to view your application favorably.
Lenders are wary of offering high credit limits to people with high credit utilization ratios. Keeping your credit utilization ratio to 30% or lower is one of the best ways to qualify for a higher credit limit.
If you’re looking for a high credit limit on your first credit card, consider getting a secured card by providing a large security deposit. Alternatively, work on building your credit so you can qualify for a higher limit in the future. In either case, MoneyGeek can make it easier to find the best card for you with our reviews of over 1,600 consumer credit cards.
Factors that Determine Credit Limit Increases or Decreases
It is common for credit card issuers to review how cardholders use their cards and then change their credit limits accordingly. Cardholders may also request issuers to increase or decrease their credit limits. A change in your credit limit may affect your credit utilization ratio. For instance, increasing your credit limit can help bring down your credit utilization ratio.
- You always make payments on time.
- You have a low credit utilization ratio.
- There has been an improvement in your credit score.
- Your income has increased.
- You request a credit limit increase.
- You’ve made late payments.
- Your credit utilization ratio has reached an undesirable level.
- You don’t use your card often.
- A lien, judgment, or chargeoff posts to your credit report.
- There is an error in your credit report.
- You’ve been a victim of identity theft.
>>MORE: HOW TO GET A HIGHER CREDIT LIMIT
What Happens if You Go Over Your Credit Limit?
The CARD Act of 2009 requires that you provide consent for over-limit protection, in which case your card provider may charge over-limit fees. If you don’t opt in for this feature, you can expect declined transactions when you go over your credit limit. If you opt for over-limit protection, your card provider will charge a fee each time you exceed your credit limit. This fee cannot be more than the amount that you’ve charged over the credit limit. For example, if you’ve exceeded your credit limit by $5, the over-limit fee will be no more than $5.
There might be other consequences of breaching your credit limit, which include:
- Increases in interest rates
- Decreases in credit limit
- Closure of your account
- A drop in your credit score
You generally don’t have to worry about over-limit fees with charge cards, given that they typically come with no preset spending limits (NPSLs). However, since these cards also rely on limits in some form, you might face declined transactions when making very high-value purchases.
Maintaining a positive payment history is the number one factor in your credit score. Set up automatic payment of the minimum amount due so that you'll avoid late fees and negative marks on your credit report. -- Lee Huffman, credit card expert at BaldThoughts.com
Other Questions You May Have About Credit Limit
Find answers to other commonly asked questions about how credit card limits work and how you can use them to your benefit.
Now that you know the meaning of credit limits and how they can affect your credit score, be sure to compare credit limits for multiple cards to find the best option for you. Once you get your new card, refrain from spending more than 30% of the total credit limit and make your payments on time to improve your creditworthiness over time.
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If you have any credit card or credit-related questions — be it about your rights as a cardholder or how credit scores work — you can trust the MoneyGeek editorial team to guide you in the right direction. Team members keep up with the latest trends, offers and changes in regulations so they may answer your questions quickly.
About the Author
- Experian. "A Look at Highest Credit Limits Among Generations and States." Accessed October 21, 2021.
- Experian. "Credit Card Debt in 2020: Balances Drop for the First Time in Eight Years." Accessed October 21, 2021.
- Consumer Action. "Consumer Action Fact Sheet: Provisions in the 2009 Credit CARD Act." Accessed October 21, 2021.
- Equifax. "US National Consumer Credit Trends Weekly Report: Originations." Accessed October 21, 2021.
- CNBC. "Here’s the average credit limit you can expect to get when you open your first credit card." Accessed November 2, 2021.
- CNBC. "What a high-limit credit card is and how to get one with your credit score." Accessed November 2, 2021.
Editorial Disclosure: Opinions, reviews, analyses and recommendations are the author’s alone and have not been reviewed, endorsed or approved by any bank, credit card issuer, hotel, airline, or other entity.
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