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.

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. 

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.

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. 

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 more than one Chase credit card because some of the cards’ rewards are more valuable if you also use a complimentary Chase card.

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. 

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.

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. 

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.

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.

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. 

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. 
  

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.