The maximum amount you can spend on a credit card is called your credit limit. Your credit card company determined your limit based on your financial situation at the time you opened your credit card, typically including your credit score and income. It’s possible to receive a credit card with a limit that feels a bit too high based on your regular monthly spending. However, with responsible financial management, you can make the most of your high credit limit without overspending or negatively impacting your credit score.
Here’s what we’re going to cover:
- How do credit card limits work?
- Average credit card spending limit
- Is my credit card limit too high?
- Pros and cons of high-limit credit cards
- How can I qualify for a higher credit card limit?
- Oportun: Affordable lending options designed with you in mind
Key takeaways
- Your credit limit is set at the credit card company’s discretion and is typically based on your credit score, income, and history with the issuer, among other factors.
- A credit card limit may be too high if it encourages overspending, which could negatively affect your credit score (and your personal finances!).
- You may be able to increase your credit limit by decreasing your debt, increasing your income, and improving your credit score.
How do credit card limits work?
A credit card limit is a maximum established when you open a card that tells you how much you can spend on that card. If you’re a brand-new borrower with a sparse credit history, you’ll likely receive a lower credit limit until you prove your ability to use the card and repay the debt responsibly. If you have years of borrowing experience and a high income, your credit limit could be tens of thousands of dollars.
When you make a purchase on your card, the amount is deducted from your credit limit, giving you less purchasing power until you repay what you’ve spent. Over time, your card issuer may decide to grant you an automated credit limit increase, or you can ask for an increase yourself. Since a requested increase can trigger a hard credit inquiry, consider requesting an increase no more often than every six months.
Average credit card spending limit
According to Experian, one of the three main credit reporting bureaus, the average credit limit for a cardholder in the U.S. was $29,855 as of Q3 of 2023. Credit limits were higher for older generations, with an average of $41,906 for Baby Boomers and $12,899 for Gen Z. This trend makes sense since credit limits tend to rise with an established credit history, solid credit score, and decades of responsible financial management.
Is my credit card limit too high?
Your credit limit might feel too high if you tend to max out your credit card (spend all that’s available to you) plus you are worried that you can’t pay it off. A credit limit can be used to enforce responsible credit card behavior (spending only what you can afford to pay off within a pay period).
However, if you’re able to manage your spending responsibly without depending on the credit limit, there are many benefits to having a higher credit limit.
Pros and cons of high-limit credit cards
Before you seek out a credit card with a high limit, consider these pros and cons:
Pro: Lower credit utilization ratio
Having more available credit means your overall credit utilization will be lower. For example, if you spend $1,000 on a credit card with a $2,000 limit, your utilization is 50%. However, if you spend $1,000 on a credit card with a $10,000 limit, your utilization would only be 10%, which is better for your credit score.
Pro: Earn more rewards
Being able to spend more on your credit card may maximize your ability to earn rewards like airline miles, cash back, or hotel points. However, you’ll want to ensure that you’re spending money wisely and not simply to rack up points.
Pro: Gain peace of mind
Having a higher credit limit can give you peace of mind that you’ll be able to use your credit card in an emergency.
Con: Could tempt you to overspend
For some people, having a high credit limit could make overspending tempting. You know it’s there, so you may feel the pull to spend it. However, overspending or maxing out your card could hurt your overall financial health and credit score.
Con: May hurt your credit score
There are a few ways having a high credit limit could negatively impact your credit score. First, requesting a credit limit increase may trigger a hard inquiry on your credit report, which may ding your score temporarily by a few points each time. Second, overspending up to your credit limit could cause a level of use that you might struggle to pay back. Missed or late payments, along with the higher utilization, could bring down your score over time.
How can I qualify for a higher credit card limit?
Some of the factors that determine your credit limit can’t be changed. For example, credit limits generally tend to increase with age, so someone with a lifetime of great credit history will be able to secure a higher limit than someone applying for their first credit card.
Some factors are within your control:
- Improve your credit score: People with a higher credit score are more likely to qualify for higher credit limits. Luckily, there are steps you can take to improve your credit score, including keeping credit utilization low and making debt payments on time.
- Let card issuers know about your raise: Since many credit card companies use income as a measure of your ability to repay debt, an increase in your income may warrant an increase in your credit limit. If you’ve recently landed a job with a higher income, you can always request a credit limit increase from your issuer.
- Pay off debt: Since card issuers may use your debt-to-income (DTI) ratio to determine your credit limit, paying off debt may help you get the most favorable credit limit from issuers.
- Stick with the same issuer: Sometimes, a credit card company is willing to extend you a higher credit limit if you have a history of being a great borrower. Instead of getting cards from multiple issuers, sticking with the same one and making consistent, timely payments could result in them granting you a higher credit limit.
Oportun: Affordable lending options designed with you in mind
Now that you understand how credit card spending limits work, you can learn about how Oportun may be able to help you if you’re looking for affordable loan options. Visit our homepage to learn about:
- Personal loans
- Secured personal loans
- Savings
- And more!
Sources:
Experian. What is the average credit limit on a credit card?
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