Credit card issuers use a variety of factors to set the credit limit for credit cards, and until they’ve considered these factors, they can’t offer a firm credit limit to you.
Factors That Affect Your Credit Limit
The Type of Credit Card
Think of credit cards as a product with predefined features. Like the interest rate and fees, credit limits are another predefined feature. How credit limit is set depends on the credit card. Some credit cards have a specific credit limit, $1,000 for example, that every approved cardholder receives, regardless of other factors. Other credit cards have a credit limit rate and approved cardholders are assigned a credit limit within that range. For example, possible credit limits for a particular card may fall between $5,000 and $10,000. The most well-qualified applications will be approved for a credit limit on the higher end of the range.
Your Income
The amount of money you make generally affects the amount you can afford to pay. While you have a better chance of getting approved for a higher credit limit if you have a high income, there’s no guarantee that your income will get you a high credit limit. Other factors, like the type of credit card, still come into play.
Your Debt-to-Income Ratio
Using the information from your credit report and credit card application, the credit card issuer will be able to estimate your debt-to-income ratio. This ratio may affect the credit limit you receive on your credit card. It means that a high income offset by high debt payments could result in a lower credit limit than if you were spending less money on monthly debt payments.
Your Credit History
How you’ve handled credit limits on your other credit cards will not only affect whether you get approved for a new credit card but also the credit limit you’ll be approved for. Late payments, high balances, and other negative information make it less likely that you’ll be approved for a high credit limit.
Limits on Other Credit Cards
Credit card issuers may take their cues from the other credit cards you have. If your credit report shows that you have high credit limits on your other credit cards, you have a better chance of being approved for a high credit limit on a new credit card. On the other hand, if you’ve typically had $500 and $1,000 credit limits, it’s unlikely that you’ll be approved for a $10,000 credit limit right away.
Co-Applicant Income and Credit Information
If you’re applying jointly with another person, the credit card issuer will consider both of your incomes and credit qualifications to set your credit limit. Bank balances and other assets generally do not affect your credit limit, unless you’re offering money as collateral to secure the credit line as with a secured credit card. Knowing the factors that credit card issuers use to set credit limits, you’re more likely to receive a low credit limit if your income is low, you have a high debt-to-income ratio, you’re just starting out with credit or are rebuilding your credit history, or the limits on your other credit cards are low.
Unique Situations
Secured Credit Cards
While most traditional credit cards decide your credit limit, you control your credit limit on a secured credit card. That’s because the credit limit on a secured credit card is typically equal to the amount of the security deposit you make. Depending on the credit card, you may be able to deposit up to $10,000 for a credit limit.
Charge Cards and No Present Spending Limit Cards
There are two types of credit cards that don’t have a hard credit limit: charge cards and credit cards with no preset spending limit. In both cases, you do not have a firm credit limit that you can spend. Instead, the credit card issuer imposes a soft limit that can change depending on your income, credit history, and purchasing habits. The difference between these two types of cards is that you’re expected to pay the full balance on a charge card each month, while you may be allowed to revolve your balance on a no preset spending limit credit card.
When Do You Find Out Your Limit?
Even the timing of finding out your credit limit is totally dependent on the credit card issuer. You may find out your credit limit at the same time you’re approved, or you may not learn until you receive your new card in the mail. That means you can’t make any concrete plans for using your credit card for purchases or balance transfers until you know for certain what your credit limit will be.
Getting a Higher Spending Amount
You’re not necessarily stuck with the credit limit you start out with. After several months of using your credit card responsibly, your credit card issuer may automatically raise your credit limit. Not all credit card issuers automatically increase credit limits. You may have to request a credit limit increase for a bigger credit limit. It’s pretty simple and quick to request a credit limit increase—just log into your online account or call your credit card’s customer service number. You may have to update your income or provide a specific credit limit amount you’d like to receive. The credit card issuer will process your request and let you know whether your credit limit increase request has been approved. If your credit limit increase isn’t approved, your credit card issuer will most likely send an email or letter letting you know the reasons you weren’t approved. If your credit score played a factor in the decision, you may receive a free copy of the score that was used and any factors that influenced your score. If your credit report was used, you’ll receive information about ordering a free copy of the credit report that was used in the decision.
