How to Assess the Creditworthiness of a Customer

2. Review a Businesses’ Credit Score by Running a Credit Report

Another useful way to determine the creditworthiness of a customer is with a business credit report to get their credit rating. This report illustrates a business’s ability to pay invoices based on its payment history and public records. The credit report provides a profile about the business, financial data like annual sales, invoice activity and credit limits over several years, legal judgements and collections activities, and a business credit score.

The business credit score is a measure of a company’s financial stability and can predict how likely they are to pay you on time. Typically, the score is between 1 and 100, with a score of 75 or higher considered excellent. You can purchase a business credit report from business credit reporting agencies including Dun & Bradstreet, Equifax Business and Experian Business.

It is important to remember that credit reports are based on information made available by the provider according to a snapshot in time, which is not necessarily apparent to the user. Users of credit reports should understand that the information available may be upwards of a year old and may not reflect real-time developments in the company's creditworthiness. It may be necessary to combine credit reports with additional credit assessment tactics, such as risk data analysis that comes with a trade credit insurance policy.

3. Ask for References

In the process of assessing creditworthiness, companies will often request trade references before extending credit to a customer. Trade references can include the customer’s bank, as well as businesses or suppliers that already extend trade credit to that customer.

Good questions to ask these references include:

How long the business or supplier has extended credit to the customer;

The credit or purchasing limit the business or supplier has extended the customer;

When the customer’s last purchase was and the amount;

How many times the account has been late

It is important to be aware of potential selection bias when reviewing bank and trade references. When asking a prospect for their references from other suppliers, for example, they are most likely to provide information on companies they pay on time and omit companies that they don't.

Collection of this information can also consume a great deal of time as you are dependent on receiving timely replies.

4. Check the Businesses' Financial Standings

Companies that want to do business with you should not hesitate to provide the financial information that will help you determine their ability to pay for your goods or services. To find out how a company is doing financially, you should ask for and review its certified financial statement in order to learn about the company’s financial performance.

You should also ask for and review the company’s cash flow statement, which indicates the company’s current operating results.

5. Calculate the Company's Debt-to-Income Ratio

Another way to determine a client’s creditworthiness is to calculate its debt-to-income ratio. This calculation shows you what portion the company’s debts make up its earnings. To determine the ratio, divide the company’s monthly debt payments by gross monthly income. These numbers are available from the company’s financial statement.

The lower the number (below 36) the better. However, good debt ratios vary from industry to industry. It is important to understand what those baseline ratios are.

6. Investigate Regional Trade Risk

When assessing creditworthiness of a client, it is important to review the risks inherent in the geographical region where your client is located. Country-specific credit risks are affected by fluctuations in currency exchange rates, economic or political instability, the potential for trade sanctions or embargo, or other issues.

These are all factors that can negatively impact a potential client’s cash flow and make trade credit a risk. Allianz Trade can help. We offer a library of research about sector and country risks that can help inform your decisions about extending credit. In addition, we can leverage our credit-risk grading model to help you forecast credit risks and potential customer defaults.

What Is a Credit Limit and What Factors Determine It?

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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MoneyGeek's Takeaways 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.

Creditworthiness 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.

Payment history 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.

Credit utilization 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.

MONEYGEEK EXPERT TIP 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.

Credit Limit Increases: 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. Decreases: 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.

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.

MONEYGEEK QUICK TIP 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

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.

EXPAND ALL How much of my credit limit should I use? You should ideally use no more than 30% of your credit limit. And the more that you can reduce your utilization below that level, the better off your score will be. When your balances are above 30%, it may adversely affect your credit utilization ratio and credit score. Is it bad to get close to your credit limit? Yes, because doing so lowers your available credit and increases your utilization. This can lower your credit score. Ideally, you should limit your borrowing to 30% of your total available credit. ​​What if I use all my credit limit? Using all your available credit will result in a 100% credit utilization ratio, which is bad for your creditworthiness. While this would hamper your chances of getting credit in the future, it can also lead to higher-than-average interest rates. When it comes to how much of your available credit you may use, we recommend limiting it to 30% or lower. What is the average credit limit for a first credit card? According to data released by Equifax, the average credit limit for all private label cards issued in June 2021 stood at $2,166. With new subprime cards, it dropped to $829. If you’re taking out your first credit card, you can expect your average credit limit to be closer to the subprime average — however, keep in mind that your credit limit may be even lower than this figure. If my credit limit is $500, how much should I spend? With a credit limit of $500, you should spend no more than $150 to keep your credit utilization ratio below the ideal 30% mark. If you need to use your card more than this throughout the month, it is OK to make extra payments throughout the month to keep your balance lower. What is the minimum credit limit? Depending on your credit history, the credit limit on your first card could be quite low. Store credit cards can come with credit limits of less than $1,000. Secured credit cards tend to have the lowest limits — sometimes as low as $200. What is a high credit limit? Any credit limit over $5,000 is considered high. Is a credit limit monthly? Credit limits do not change each month. Your credit limit might increase or decrease based on different factors, but this does not happen often. What is a good credit limit for my income? Lenders look at your income to determine your debt-to-income ratio (DTI), which measures your earnings against your existing debt-related obligations. The lower your DTI, the higher a credit limit you might stand to get. Keep in mind that other factors such as your credit score, length of credit history and how you utilize your credit might also affect your credit limit.

Next Steps

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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MoneyGeek experts use different sources — including data from the Bureau of Labor Statistics (BLS) — to analyze spending trends. We remain up to date on the latest credit card offers and changes in fees/APRs of over 1,600 credit cards to help you find the best option for you.

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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 Rajiv Baniwal has been writing about different financial topics for over 15 years. Meticulous in his research, he makes sure he provides accurate and up-to-date information. His areas of expertise include mortgages, personal loans, credit cards, insurance and international money transfers. Read Full Bio »

What is a credit limit?

A credit limit is the maximum amount that you can spend with a credit card or line of credit. Having high limits lets you spend more and can be good for your credit scores, but can also make it easier to overspend and rack up a lot of debt.

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Advertiser Disclosure Advertiser Disclosure Close We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials. Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates. Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

Your credit limit is the absolute maximum amount of money that your lender will let you borrow while using your credit card or line of credit.

For example, each time you buy something with your credit card, your purchase amount is added to your credit card balance. To know how much available credit you have left to spend, simply subtract your balance from your credit limit. When you make a payment, your balance goes down, and the amount you can spend increases.

If you’re wondering what your credit card or line of credit’s limit is, you can usually find it by logging into your account. Many creditors provide this info on your online dashboard or on any monthly statements.

Your credit limits are important for a few reasons. Higher credit limits offer you more flexibility when it comes to using your account. But they could also make it easier to overspend and wind up in debt. Additionally, how much of your limit you use can also have an effect on your credit scores.

Let’s explore how credit limits are set, why they’re important, how they affect your credit scores and what you can do to improve your overall credit health with your credit limits.

What does a credit limit mean and how is it decided?

As we mentioned, a credit limit is the ceiling of what your credit card issuer or lender will allow you to borrow from them. They set your limit based on several factors including those they consider when assessing your credit scores, like your payment history and credit utilization.

The chart below shows that generally, Credit Karma members who have higher VantageScore 3.0 credit scores also generally have higher average credit card limits.

Image: cced_creditlimit_su0221

While each lender has its own method of determining the credit limit for each of your cards, one of the top considerations lenders factor into their decision is your ability to repay the money that you borrow.

Your payment history can give lenders a key insight as to how responsible you’ve been with handling your money and debts up until you applied to borrow from them. The more spotless and on-time your payment history is, the better the chance that a lender will think lending money to you is a good idea. The more comfortable a lender is with lending you money, the higher your credit limit could be, as the lender may be comfortable with letting you borrow more.

Another factor lenders may consider in deciding your credit limit is how much you make. Even if you have perfect credit, there’s probably no way you could pay off a $100,000 credit card balance if your income is $20,000 a year. If you have a higher income, a lender may be more likely to give you a higher credit limit.

Learn more about the factors that affect your credit scores.

How credit limits can affect your credit scores

We mentioned that lenders will also consider your credit utilization rate, or the amount of money that you owe compared to the total amount of credit you have access to. A low credit utilization score is another indication that you’re able to use your credit responsibly and sends a signal to prospective lenders that you might be a good candidate for their credit products if you meet other criteria. Experts generally agree that you should keep your credit utilization rate below 30% whenever possible.

So, how do you know what your credit utilization rate is? To calculate it, divide the total amount of your credit card balances by your total credit card limits.

If your credit utilization is above 30%, you may find that increasing your credit limit can give your credit scores a boost. Because if you increase your credit limit but keep your credit card usage the same, your credit utilization rate will go down. This is a good way to try to improve your credit if you’re regularly holding large balances on your cards.

Of course, increasing your credit limits means that you can spend more on your cards, which could make it easier for you to overspend and wind up in debt. This will cost you money and could decrease your credit scores if your credit utilization ratio gets too high.

How to improve your credit with a credit limit increase

You might want to increase your credit limit for a few reasons. For example, you may be looking for more flexibility when it comes to how much you can spend.

The easiest way to try to increase your credit limit is to simply ask. Most card issuers let you request an increased credit limit through their website or over the phone.

But keep in mind that when you request a credit limit increase from your credit card company, they may perform a hard credit inquiry to determine if you’re eligible. This could lower your scores by a few points, or it may have a negligible effect on your scores. Each card issuer will have its own rules and processes surrounding credit limit increases.

Remember that not all requests will be approved. Your card issuer will consider your request much like a request for a new card, considering factors such as …

Your payment history

Your credit scores

Your income

Your employment status

If you’re looking to increase your overall credit limits rather than your credit limit on a specific card you can also try applying for a new credit card. If you’re approved, your new card will have its own credit limit, independent of the limits of your other cards — but remember, this will trigger a hard inquiry and potentially affect your credit scores negatively.

What to do if you have an unreported credit limit

While a lender might report on your account activity to the bureaus, it may not necessarily report your credit limit. And since your credit limits can have a positive impact on your credit scores (especially if they’ve gone up or you’re using less than 30% of your limit), you’ll generally want your lenders to report your limits to the bureaus. If you have an unreported credit limit, here are a few options to consider.

Request that a credit limit be reported. Call up your card issuer’s customer service to find out if the issuer might change how it reports your card. Keep in mind that card issuers aren’t required to report to the bureaus, but it doesn’t hurt to ask.

Consider opening a new credit card account. If the card that isn’t reporting a limit is one of only a few credit accounts on your reports — and you’re in a position to take on some additional credit — consider opening a new credit card. Make sure you find the best credit card for you and research whether the issuer will report your credit limit to the credit bureaus. Keep in mind that opening a new account will decrease your average age of credit and will add a hard inquiry to your credit reports, which could cause your credit scores to decrease.

Decrease usage of the card. While you shouldn’t necessarily close your credit card account , it may be wise to use your card less often while still keeping it active in order to lower your overall credit utilization rate.

Next steps

Credit limits determine how much you can spend using your credit cards and serve as a way for lenders to limit the risk of lending money. Having high credit limits can be a good thing, because it gives you the flexibility to spend money when you need to — and it may help you maintain good credit scores.

But having high credit limits can be dangerous, as overspending on a high-limit card may put you into more debt than you can easily pay off.

Aim to have credit limits high enough that you’re only spending 30% or less of your limit, but not so high that you wouldn’t be able to handle the debt if you ever find yourself reaching those limits. Your credit limit should be something to stay far below, rather than a target to hit.