Credit Card Limits

August 5, 2019

Credit Card Limits Title Image

Many Americans use credit cards. If you’re one of them, you probably know that you have a credit card limit. But what is it exactly? This is a term that many people may not understand. We’re going to explain what credit limits are and how they’re determined by your credit card issuer.

What Is A Credit Card Limit?

A credit card limit is the maximum amount of money you can use on your credit card. This is determined by several things. When you apply for a new credit card, your issuer will usually let you know what your limit is. If you’re approved for a credit limit of $2,000, you can spend up to $2,000 in purchases on your credit card.

How Are Credit Card Limits Determined?

Your credit limit is determined by the credit card issuer. They take into account factors such as your income and credit score. Usually, people with higher credit scores are approved for higher credit limits. Different people with the same credit card can have different credit limits.

Factors that determine your credit score Image

Debt vs. Income

Many credit card issuers evaluate your debt-to-income ratio when deciding what credit limit to offer you. This means that they measure your monthly debt payments against your wages and other income. A higher debt-to-income ratio may lead to a lower limit. This is because credit card issuers want to know you’re capable of paying off the debt you incur on your credit card.

Your First Credit Limit

If you’ve never had a credit card, then it may be a while until you’re approved for a high limit. Since you don’t have a credit history, credit card issuers aren’t sure how you’ll behave with the credit card they give you. They have no way of knowing whether you’ll rack up a huge balance and never pay it back, or if you’ll pay in full each month.

Because of this, issuers won’t usually offer big limits to people with no credit. If you’re applying for your first credit card, don’t be surprised if your limit is only $100.

If you’re offered a small credit limit, is it worth it? The answer is yes. If you use it for small purchases each month and pay it off on time, then this will help you establish positive credit. A small limit allows you to get used to handling credit responsibly with little risk to the lender.

If you consistently use your card responsibly, you may be able to ask for a credit limit increase or apply for a new card that has a higher limit.

What Is a Good Credit Limit?

This is a difficult question to answer because it depends on your needs and the purpose of the credit card. If you have a low credit score, then it’s highly unlikely that you’ll be able to get a high credit limit.

Average credit card limit Image

The average credit card limit as of 2016 was $8,071. If you have a higher credit score, you may be able to get a line of credit that’s $10,000 or more.

Limits are different for each credit card issuer because they have different lending criteria. If you have credit cards from different banks, they’ll probably have different limits.

Increasing Your Credit Limit

You can get a credit limit increase. Your credit card issuer wants to keep your business, so if they’re able to give you a credit limit increase, they will in order to keep you using their services.

The key to getting approved for a higher limit is using your card responsibly. If you consistently make your payments on time each month and keep your utilization low, then the credit card issuer may approve your request. But remember to allow six to 12 months before asking. Your issuer probably won’t raise your limit after just one or two months of the account being open, or if you’ve been making your payments late. Remember that requesting an increase also causes a hard inquiry, so you’ll want to be strategic about when you ask for one.

Some credit card issuers will actively increase your limit. They’ll review your account history and see if you’re eligible for an increase. Sometimes, they’ll ask you to update your income. This isn’t required, but if you’ve gotten a raise recently, you can provide that information and the issuer may increase your limit. When an issuer reviews your account like this, it does not cause a hard inquiry because you didn’t make a request for them to review the account.

When Do You Find Out What Your Limit Is?

This can vary from issuer to issuer. Some cards, usually the ones which have a predetermined limit, will tell you as soon as you find out whether or not you’ve been approved. Other cards will approve you before calculating. You will either find out at the same time you find out your application has been approved, or the limit may come with the card in the mail.

Credit Utilization

Credit utilization is how much credit is available to you that you’re using. For instance, if you have a $20,000 limit on your credit card with a $5,000 balance, your utilization is 25%. This is important because this makes up 30% of your credit score. If you have a high utilization ratio, this will negatively impact your score. FICO suggests keeping your utilization under 30%.

You probably don’t want to use your entire credit limit. Not only will it hurt your credit score, but if you can’t pay off the balance in full, you’ll spend a lot of money on interest. Credit cards usually come with high-interest rates. This can lead to a lot of debt that’s difficult to pay off.

If you want to get a credit limit increase or get approved for another credit account, the lender will look at your utilization ratio when deciding whether or not to approve your application.

Call For A Free Credit Consultation

Lexington Law has helped clients work towards fair and accurate credit scores by leveraging their rights. We’ve helped hundreds of thousands of clients remove unfair, inaccurate and unverified accounts from their credit reports.

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Conclusion

Credit cards are great but you need to use them responsibly. Even if you get approved for a high credit limit, remember it’s not a good idea to spend all of it. Your credit score impacts how much of a credit limit you’re going to get. Don’t expect a $10,000 credit limit on your first credit card. You’ll need to work to make your payments on time and keep your utilization ratio low to be approved for a higher one.

If you have damaged credit and can’t get approved for a credit card, contact the credit specialists at Lexington Law Firm. We have over a decade of experience helping clients repair credit as a result of negative, inaccurate, unfair and unverified information. Call now for a free credit consultation so that you can be on your way to building credit.

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