How do card issuers determine your credit limits?
The hardest part of figuring out how your credit limits stack up is that there's no definitive guide that all credit card companies use to set your limits. But though each card issuer has its own process, they all look at some of the same things when making a decision:
Your credit score
Since your credit score acts as a sort of summary of your credit report, it is a big factor in most credit decisions, including setting your spending limit. If you have an excellent credit score, you're more likely to receive a high credit limit. If you have a low score, your limit will also be low.
Your credit history age
In general, credit card companies know that the longer you've had credit, the more likely you are to use it responsibly. That's why the age of your credit history will play a big role in how much credit you're offered. And, as we see below, the average credit card limit increases steadily with age.
Your income
The credit card spending limit you're offered is a direct result of how risky the card issuer thinks you are as a customer. While income isn't as important as your credit history in determining your credit limit, a high income can help you get a higher credit limit than you may otherwise receive.
Your current credit card accounts
Most lenders will look at your average credit card limits and overall available credit when assigning you a new credit limit. Card companies may offer you a lower limit if they feel you already have too much credit. And some credit card issuers will cap the amount of credit you can get from their company. So, if you already have credit card accounts with an issuer and you apply for a new card, your credit limit may be restricted by the spending limits on your other cards with that issuer.
Since each issuer has its own ways to determine credit limits, it's impossible to predict what kind of limit you'll get when you apply for a new card. But, as you can see, the length of your credit history is an important factor -- and, according to the data, it's also a pretty good estimator. The numbers show a strong correlation between average credit card limits and age.
What if you have a below average credit limit?
It's possible your credit limit is below average compared to others in your generation. If so, you're in no immediate trouble. There is no "small credit limit" fee. But it would benefit you financially to boost your credit limit. The perks of boosting your credit limit:
- Improved credit score
- More spending power
You can raise your credit limit by paying your credit card bills on time. As you age, your credit limit will probably rise. Right now, credit issuers are being especially stingy with credit, but there is zero downside to spending responsibly until the economy stabilizes.
Your credit limit is a useful way to measure your spending power. But for your financial health, a credit score is probably more useful. Your credit score impacts car loans, mortgage payments, and personal loans. You may also want to consider the average American's savings balance.
Don't stress over your limits
It's all too easy to compare yourself with the average credit card limit, but that number is just that -- a number, and one that hides a lot of nuance and variables. For example, credit card beginners of all ages typically start with low credit limits.
So don't stress too much over your limits. Overall, it's more important to think of your credit limits in terms of how much available credit you really need.
