How credit card limits work

I didn’t even know I had a credit limit when I opened my first credit card. It was only after I’d been a cardholder for a while that I figured out what a credit card limit is and how it works.

But I still didn’t know what credit limits meant for my overall financial health — or that I had some control over my limit for both new and existing cards. As I’ve since learned, the right limit, coupled with smart spending habits, can boost a credit score significantly.

Here’s the insider info I wish I’d had, including reasons why going for the highest possible limit isn’t always the best idea.

What is a credit limit?

A credit card limit is the maximum amount a cardholder can spend on a certain card. Or, in other words, the maximum balance you can hold before you have to pay some back.

Your specific limit is a number the bank thinks you’ll be able to repay based on the financial information you provide. Banks assign you a limit after you’re approved for a card.

Secured credit cards work a little differently — you put down a security deposit, and that deposit is your credit limit.

Read more: What’s the difference between a secured and unsecured credit card? (and which should you get?)

Credit limit vs. available credit

These terms seem interchangeable, right? The difference is actually pretty important:

Credit limits are the total amount of credit you can charge on the account.

Available credit is how much of that amount you have left to use — your credit limit, minus any charges to your card.

Your available credit can change while your credit limit stays the same.

Say you have a $5,000 credit limit, and you’re carrying a $2,000 balance. That leaves you with $3,000 in available credit. If you pay off $1,000 of the balance, your available credit would go back up to $4,000.

Read more: Available credit: what it is and why it’s important

What is an average credit card limit?

A lot of variables affect your credit limit, like how long you’ve had credit, the type of card you choose, and even your age.

As a ballpark range, 18 to 22-year-old cardholders have an average $8,062 credit limit across all cards, according to Experian.

Millennials in the 23 to 38-year-old age bracket have a higher average limit of $20,467 across all cards.

Younger cardholders are less likely to have an established credit history, so card issuers tend to start them out with lower limits. Equifax estimates an average $5,000-$6,000 credit limit for cardholders opening their first accounts.

As you get older, you build up more credit and (hopefully) earn more money, which can qualify you for the five-figure limits. The highest limits often come with elite, high-fee cards typically reserved for applicants with top-tier credit.

In general, the higher the credit score you need to get approved for a card, the higher the credit limit you can get.

Read more: Best cash back credit cards

How do banks determine your credit limit?

Every card company has its own process, but in general, you can expect creditors to look at these factors: your income, debt, debt-to-income ratio, cash flow, credit history, and credit score.

Income and employment history

Credit card applications typically ask how long you’ve been employed and how much you earn. Higher earners score higher credit limits, unless they also have a high amount of debt.

Usually, credit card issuers do not actually verify income. Credit card banks make their decision solely upon the income and expense information you provide.

When you apply for a large loan, the bank will ask for proof of your income from pay stubs, W-2 forms, or copies of your tax returns. But because the credit limits on credit cards are usually lower than a car loan or a mortgage, the issuing banks usually do not go through the hassle of asking for income documentation — they just ask.

So why does the bank trust you? What’s to stop you from saying you earn $100,000 a year when you only earn $20,000?

It’s because the bank is simply covering its butt. The bank doesn’t want to be accused of maliciously lending you money you can’t afford to repay, so it asks you for your income.

Let’s say that you default on your credit card debt and the bank has to take you to court. If you could, in fact, prove to a judge that the bank lent you money it knew you couldn’t repay, you might be able to get out of the debt. If, however, the bank can provide written proof that you stated your income was at a certain level, the judge will find you responsible for paying the debt—regardless of your actual income.

Bottom line: don’t lie about your income on credit applications!

Debt and debt-to-income ratio

Debt includes personal and student loans, mortgages, other credit cards, car payments, and any other repayment obligations you have.

Creditors then look at how much debt you’re in relative to your income. This is your debt-to-income or DTI ratio. A high DTI ratio means you may be less able to keep up with payments on a new account. In theory, an applicant with a modest salary and little debt could qualify for a higher credit limit than a high earner with multiple outstanding loans.

Banks may also consider your housing costs since rents and mortgages are many people’s largest regular expenses.

Credit history and credit score

A long credit history of on-time payments shows proof of financial stability. First-time credit card applicants don’t necessarily have this proof, so they won’t qualify for the highest range of limits.

If you do hold other cards, creditors check out your payment history and credit limits on those cards. They’ll be wary of extending you more credit if you’ve maxed out credit limits on previous cards, or you brush up against the limit regularly.

Another factor that can influence your credit limit is when you have multiple cards with the same issuer. For example, many people carry both the Chase Sapphire Preferred® Card and the Chase Freedom Unlimited® to take advantage of transferring points between them to maximize rewards.

It’s possible to have several, even dozens of credit cards with one bank, but the more cards you get, the lower your limit on each card may be. That’s because even though you have several different credit cards, you’re getting credit from a single bank. At some point, it will look to limit its exposure in the event you can’t pay them back.

A checkered credit report can also work against you getting a high limit. If you’ve applied for multiple cards in a short period of time, or you have delinquencies or bankruptcies, you’re considered a riskier applicant.

Credit scores make a difference, though they’re only one part of your overall financial picture. Higher scores get higher limits.

The creditor’s own financial state

This is a factor you can’t control. In tough economic environments like recessions, for instance, creditors may not want to extend super-high limits to anyone, even model applicants.

Read more: What credit score do you need to get approved for a credit card?

Will I get the credit limit I need to transfer a balance?

Sometimes, you apply for a balance transfer credit card only to find out your new credit limit won’t cover the entire balance you want to pay off.

For example, you want to transfer a $5,000 credit card from a 15% APR card to a card with a 0% intro APR for 18 months. Unfortunately, the new card only gives you a $4,000 credit limit.

If you requested the balance transfer at the time of application, the transfer will still be processed — $4,000 of your old balance will move to the new card. That leaves you $1,000 you’ll still need to pay off on the old higher-APR card.

While getting a no-interest balance transfer on some debt is better than continuing to pay a higher rate, you may want to know how much you’ll be able to transfer before committing. In that case, simply apply for the balance transfer card you want but do not complete the balance transfer request section.

Once you’re approved and know your credit limit, you can call to request the transfer. Most of the best balance transfer credit cards will honor their 0% intro APRs on balance transfers as long as you initiate the transfer within a month or two of opening the account. Read the card terms carefully before you apply.

Read more: 0% APR balance transfers can save thousands in interest, but should you really apply?

How much credit should you have?

Maintaining good credit isn’t just about getting the highest credit limit you can. It’s about using your limits smartly.

There’s no hard and fast number that will work for everyone’s spending habits and goals. To understand how a credit card limit can help your finances, rather than harm them, it helps to know how credit utilization rates work.

Understanding credit utilization rates

In a nutshell, your credit utilization rate (CUR) is the amount of credit you’re using divided by your credit limit and expressed as a percentage.

The lower your credit utilization rate is, the better.

If you have a $5,000 limit and a $4,000 balance, you’re using 80% of your limit, so you’ll have an 80% CUR on that account. Someone with the same limit who carries a $200 balance would only have a 4% CUR.

Most spenders fall somewhere in the middle between these two extremes. The Consumer Financial Protection Bureau recommends you keep your rate at 30% or below. Ideally, you should aim for a 10% credit utilization rate if possible.

To see what a 10% CUR looks like for your budget, take your average monthly card balance and divide it by 0.10. That number is the credit limit you’d need to keep your credit utilization rate at a good level with your current spending habits.

Why are credit utilization rates important?

Credit utilization rates make up 30% of your FICO credit score. They’re the second-largest variable in credit scores — second after payment history, which makes up about 35% of your credit rating. This includes utilization rates on all your open accounts.

A low CUR shows creditors you’re good at managing the credit you have, and you’re potentially able to handle a larger credit limit.

This is where high credit limits might really help your financial health, because you’re able to spend more money while keeping a low utilization rate.

But even cards with low limits can help you build up credit. So long as you handle your spending well and pay the cards off regularly, you’ll get a low utilization rate that looks good to lenders.

Read more: What’s your credit utilization ratio and how does it affect your credit score?

How do you get a higher credit limit?

You can ask credit card companies to up your limit. There may be a form on their website for this request, but you’ll often have better luck if you brave the phone lines and speak to a representative.

Creditors like to see one or more of these signs before they approve a higher limit:

An improved credit score.

Consistent on-time bill payment over several bill cycles.

An income increase (make sure to let them know if you’re making more money!).

A decrease in debt or expenses.

Keep in mind your credit card company may do a hard credit check, which affects your score before they approve an increase.

What’s the highest credit limit I might get?

Keep your expectations reasonable. With major card issuers like Citi and Capital One, well-qualified applicants could get a credit limit between $5,000 and $10,000. If you have just-okay credit or you’re opening a student card, $5,000 is about the maximum limit you can expect, and you may start in the $1,000-$2,000 range.

Based on my own experience, I’ve seen new credit card accounts issued with credit limits between $10,000 and $15,000. That’s for consumers with credit scores above 720 and very healthy incomes.

Over time, credit limits can get much higher — I now have an American Express credit limit that’s over $30,000, and top-tier Chase and Capital One credit cards can go up to $50,000. Some card limits soar into the six figures. But most issuers won’t give you that as soon as you apply for a brand new card until you’ve proven you’re a responsible customer over a few years.

Some issuers — notably, Amex and Discover — are rumored to be more generous with credit limits because they target very creditworthy applicants.

Read more: Best credit cards if your credit score is above 750

Do you need a higher credit limit?

Let’s say you can get a higher limit. Is that actually a good idea?

Assuming you’re responsible with the credit limit you already have, here’s when you might want to pursue a credit increase:

You’d like to improve your credit utilization ratio, and you can pay off the extra balance. If you’re maxing out cards and you have the means to pay them off, or you need to make a major purchase but you have a plan for repayment, a higher limit might be smart. Even better: ask for a credit increase, then keep your spending well below the limit. Your credit score will thank you.

You don’t want to open any more credit cards. Another card means another hard credit inquiry, another monthly payment date, and another interest rate to worry about. It’s often easier to get an increase on an existing card.

On the other hand, you may not want to increase your limit if:

You max out cards because of uncontrolled spending. Planned purchases with clear repayment timelines are one thing, but if you struggle to curb your spending on things you don’t really need, try other tactics to get your budget under control first.

You’re planning on a major investment like a mortgage. A credit card limit increase may affect your credit score, and you want your credit report in great shape for big investments.

Read more: Why and how to request a credit limit increase

Can credit card companies lower your limit?

Creditors can lower your limit without your consent, and they don’t necessarily have to tell you first.

If the decrease is because of information on your credit report, like multiple missed payments, they should send you a notice after the fact.

Your limit might drop because:

Your credit score dropped.

Your credit utilization rate is too high.

You have a pattern of missed or late payments.

You rarely use the card, or the card is inactive.

You’ve taken on more debt.

Sometimes, however, your credit limit will decrease for reasons that have nothing to do with your personal situation. In risky financial environments, companies may lower customer limits across the board to manage their own risk. Many major creditors dropped limits for new and existing customers in response to the COVID-19 economic tailspin.

What to do if your credit limit decreases

You can contact the credit card issuer to see if they’ll give you an explanation and possibly restore your old limit. If your financial circumstances haven’t changed, you may need to explain this and provide proof.

But if you’re already in a fair amount of debt, it may be smarter to focus on paying that down and making regular payments on your balance before you worry about your credit limit.

What happens if you go over your credit card limit?

You’ll know when you’ve gone over the limit because your card will be declined if you try to charge any more expenses.

Exceeding your limit once isn’t the end of the world. But if it becomes a pattern, there are more consequences, which could include:

Higher interest rates on your remaining balance.

Overcharge fees.

A lower credit limit.

A higher credit utilization ratio and lower credit score.

If you exceed the limit often enough, lenders may cancel your card altogether.

Will you get an alert when you exceed the credit limit?

Not usually. Your first alert will be if your card gets declined.

Lenders are required to let you know in advance if they’re raising your interest rate. And legislation in 2009 prohibited lenders from automatically charging over-the-limit fees.

Instead, you can “opt-in” to an optional over-the-limit coverage program where you’re allowed to spend over your limit, but you’re charged a fee each billing cycle.

I don’t recommend you opt for over-the-limit coverage. Fees add up quickly, and it’s much better to use that cash for paying down existing debt.

What should I do if I exceed the limit?

Go over your statement and make sure there aren’t any fraudulent purchases.

Make a plan to pay off as much of your balance as possible.

If you can, pay down your balance before the end of the credit card statement period.

If you don’t have the cash to make payments, find out if your credit card issuer has modified or “hardship” payment plans available.

Don’t try to increase your limit yet. See if you can change your spending habits and stay under the limit for six months or so. Once you’ve proven yourself as a smart credit user, you’re more likely to get approved for an increase.

Summary

Credit limits can be a great tool for improving your credit and enhancing your overall financial health — especially if you keep your expenses well under the maximum.

When issuers see how well you’ve handled a credit limit on one card, they’ll be more inclined to give you an increase or a higher limit on the next card. It’s essentially a reward for responsible spending. If you’re starting out with a low-limit card, think of it as practice for being a smart cardholder.

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Read more:

The Average Credit Card Limit

Your credit limit determines how much you can charge to your credit card before you start racking up interest. In combination with how much you spend, your credit limit also determines your credit utilization ratio. That’s the ratio of the credit you use to your credit limit. Let’s take a closer look at the average credit limit. The lower your ratio, the higher your credit score tends to be. Let’s take a look at the average credit limit by credit score and age.

Consider working with a financial advisor as you work to improve your personal money management.

The Average Credit Card Limit

According to Experian data, the average credit card limit as of December 2016 was $8,071. That’s relatively unchanged from December 2015, when the average credit card limit was $8,042. As you’ll see below, there is a wide range in credit card limits because consumers with low credit scores can’t access high limits.

The Average Credit Limit by Credit Score

The higher your credit score the more likely your credit card company is to offer you a high credit limit. If you have a low credit score you’ll have a hard time convincing your credit card company to give you a high credit limit.

Credit bureau Experian breaks credit scores into the following credit score ranges: Deep SubPrime (300-499); SubPrime (500-600); NonPrime (601-660); Prime (661-780); SuperPrime (781+).

Experian data shows that, as of December 2016, the average credit limit of a consumer with a Deep SubPrime credit score was $1,834. For consumers with SubPrime credit scores, the average credit limit was $2,645. Consumers with NonPrime credit had an average credit limit of $4,674. Those who have Prime credit scores had an average credit limit of $7,593. And consumers lucky enough to have SuperPrime credit scores had an average credit limit of $11,357. As you can see, consumers with the highest credit scores have access to the highest credit limits.

Check out the best balance transfer credit cards.

The Average Credit Limit by Age

Do credit limits increase with age? The answer is yes. Experian data shows that the average credit limit for those in the “Silent Generation” (born 1900-1946) is $9,929. Baby Boomers (born (1947-1966) have an average credit limit of $9,172. Member of Gen X (born 1967-1981) have an average credit limit of $7,398. Gen Y members (born 1982 – 1995) have an average credit limit of $4,814. Finally, Members of Generation Z (born 1996 – 1999) have an average credit limit of just $1,451.

This relationship between age and credit limit makes sense when you consider the fact that people tend to earn higher salaries as they advance in their career and grow their net worth. Ideally, by the time you’re a senior you’ve saved for retirement and paid down your mortgage.

Bottom Line

Looking for a high credit limit? There’s no shortcut. It’s all about having a high credit score and a solid income. If your income has gone up since you got your current credit limit, you can reach out to your bank and ask for a credit limit increase. If your spending stays constant, a higher credit limit will help you lower your credit utilization ratio, which in turn will boost your credit score.

It’s important to remember, though, that a high credit limit shouldn’t be treated as an invitation to get into debt. Just because your credit limit is $5,000 a month doesn’t mean you should spend $5,000 a month, particularly if you can’t afford to pay your bill in full at the end of your billing period.

Tips on Personal Finance

To make sure you’re spending responsibly and staying on track to meet your financial goals, consider working with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Use SmartAsset’s free personal loan calculator to calculate monthly payments and see the total costs of a loan over time.

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Credit card limits, explained

In simplest terms, a credit card limit — also known as a credit line — is the maximum amount that a person can spend on their card, set by the credit card issuer. But there's more to it than that. Learn more about what a credit card limit is, what can happen if you go over your limit and how a limit may be increased.

What is a credit card limit?

A credit card, which is a type of revolving credit account, comes with a credit limit assigned by the lender. This limit is the maximum amount you can spend on your credit card, but note that you'll still have to make a required monthly payment. As you make purchases using your card, the cost of each purchase is subtracted from your credit limit. The amount you're left with is known as your available credit.

How is a credit limit determined?

Credit card limits can range from a few hundred dollars to tens of thousands of dollars, depending on a variety of factors including:

Payment history

Current accounts

Account history

Debt

Income

What happens if I go over my credit card limit?

If your balance exceeds your credit limit, this is referred to as being overlimit. If you are overlimit, a few things could happen. Some credit cards may decline your transactions if you try to spend more than the remaining balance. But if the transaction goes through, this can put you over your credit card limit and you may be charged a fee, also known as an over-limit transaction fee. To help avoid going over your credit limit, you may be able to set up an alert with your card issuer.

Can I increase my credit limit?

In some cases, you can increase your credit limit on your credit card. If you're hoping for a credit line increase, the issuer will often check whether:

You make on-time payments

You make more than the minimum monthly payments or pay your balance in full

You recently had changes to your income

You have an appropriate credit score

​ You have an appropriate credit utilization ratio

You have a long history with the account

You can often request a credit limit increase online, over the phone or through a lender invitation. To submit a request online, sign in to your account and look for the option to submit a request. You may be asked to update your income information, which may be taken into consideration when evaluating your credit card limit increase.

Aside from submitting a request online, cardmembers can call the phone number on the back of the credit card and ask a representative about eligibility. Similar to applying online, you'll likely need to provide the same basic information regarding your finances.

Without making a request, some credit card issuers may approach you about a potential credit limit increase. Similarly, your credit card issuer may automatically increase your credit limit based on the factors mentioned earlier. If you're worried that you may not notice the increase in your limit, the issuer will typically let you know.

In summary

As you can see a lot goes into a credit card limit. In addition, there are several factors that might increase your chances at increasing your limit, and these factors align with healthy credit management habits.