How much is the credit card limit?

Posted on: 31 Jul 2024

In the credit card application, one of the most important criteria is the credit line. The credit limit also defines to what extent one is allowed to charge on the card so as not to reach the limit and incur over-the-limit fees or other repercussions. But how does the issuer come up with the credit limit to offer the applicants? And how often and how much should your limit be to avoid such problems?

Credit card limit is important because it defines the maximum amount of credit card that is available to be used by the cardholder.

Several factors help credit card issuers decide the right credit limit to assign to each applicant for a new credit card. Key considerations typically include:

Your credit score: Your credit score provides issuers with information on your past performance in repaying credit. Those with good credit scores are usually offered higher initial credit limits.
Your income: This income level provides a clue on whether or not you can comfortably go for more of credit card debts. Larger limits should be expected from people with higher incomes.
Existing debt and credit utilization: The number of other cards that you have, their credit limits, and how much of the limits you are charging also play a significant role. Less use and fewer cards translate to larger new limits.
Your relationship with the issuer: If you have other accounts such as loans or previous credit cards with the credit card company, they will have better information about your risk profile and may offer better terms.
Other factors such as age also come into play as other indicators of either risk or stability over time.

The criteria or factors that lenders employ for such assessments vary across institutions and it is a process that is increasingly getting quantitatively sophisticated. However, knowing these basic types of key inputs can give a realistic expectation of what credit limits may be offered by various providers.

The following are some of the questions that were posed by credit card users: How often should I use my credit card

In other words, there is no clear rule regarding exactly which credit limit you “should” have and that applies in every case. As for the right limit, this is something that you will have to determine for yourself based on your financial situation and spending habits. However, there are a few general rules that can help to understand whether the current limits look rather reasonable or whether it is better to ask for an increase.

As a rule of thumb, many financial experts recommend:

The second rule of thumb is to keep the total credit utilization below 30 percent of the available credit limit on all credit cards. It is calculated as total balances divided by total limits, and you will get the percentage. It is advisable to ensure that you do not go above 30% as it can negatively affect your credit score.
Using each card for only a maximum of 10 percent for the best credit results.
Non-Store Credit Card segment means the total available limits on all non-store credit cards should be at least 1x your annual income.

Thus, for instance, a person with a personal annual income of $60K would need at least $60K in total credit limits among all the cards to maintain utilization rates safely low. People who make $100,000 a year should ideally have more than $100,000 in total revolving credit from cards.

If necessary to meet this target, you can always ask the issuers for a boost in the credit ceiling before they reduce it. Some providers allow you to submit an online application for more credit once in a while as per your request. While some will be willing to approve such high amounts without much haggling, others may need underlying evidence of higher income to warrant the higher limits.

What Are the Average Credit Limits

The average limit of open credit cards was $7,858 across the country at the end of 2021 as per the credit bureau Experian. These amounts however can differ greatly between different consumers based on credit scores and also the traits discussed earlier such as income level and current utilization rates.

Here is a breakdown of the spectrum of limits Americans tend to see currently based on their credit tier:

Super Prime Borrowers (760+ credit scores): An average limit of $17,867
Prime Borrowers (700-759 scores): $10,236 average
Non-prime Borrowers (600-699 scores): An average of $5,784.
Subprime Borrowers (<600 scores): $3,996 on average

Credit scores as high as 720 or better under both FICO and the VantageScore models mean that consumers can expect starting credit limits of $10,000 or more – and often more than $15,000 from mainstream card issuers.