What is Credit Limit & How Do You Increase It?

What is Credit Limit on a Credit Card?

A credit limit is the maximum balance you can carry on your credit card at any one time.

Each purchase you make on your credit card reduces your credit limit accordingly.

Once you reach this limit, you can’t charge further purchases until you apply a payment toward your balance owing, which frees up credit space.

If you attempt to exceed your credit limit, your transaction will decline to process or incur an over-limit fee, depending on your card issuer’s policy.

How is Credit Limit Determined?

All credit cards come with a credit limit, but no standard amount applies to each cardholder.

Instead, card issuers assign them based on various factors, most of which pertain to your finances.

Below are the most prominent ones:

  • Credit Score.
    The higher your score, the larger the credit limit you can expect to receive.
  • Payment History.
    Your payment history includes details that show whether you pay your bills and debt payments on time.
  • Current Debt Obligations.
    The amount of debt you presently owe can impact your ability to service your credit card payments.
  • Average Age of Accounts.
    Experience matters when it comes to managing debt. The longer you’ve maintained your existing credit accounts, the more likely you’ll receive a high borrowing capacity on your card.
  • Income and Employment Status.
    Naturally, your card provider wants assurances that you have sufficient income to cover your payments.

How does Credit Limit work?

A credit limit is a prominent attribute of revolving credit products, including credit cards and credit lines.

A revolving credit product allows you to continuously borrow funds at your discretion up to your account’s pre-set credit limit.

When you conduct a purchase using your credit card, your card issuer subtracts the corresponding amount, shrinking your available credit limit.

When you pay back the amount owed, it’s available for you to use again.

You don’t need to reapply each time you wish to draw funds.

Suppose your lender issues you a credit card with a $10,000 credit limit near the beginning of March.

You charge $4,000 worth of purchases to your card during the month.

Once your March billing cycle ends, your lender sends you a statement showing a balance owing of $4,000 with a deadline of February 10.

Your credit limit has dropped by $4,000, leaving you with $6,000 worth of spending power.

You decide to apply $3,000 against your balance before the deadline expires, meaning the remaining $1,000 will carry over to the following billing cycle.

As a result, your spending power increases to $9,000 ($6,000 + $3,000), which is the amount you can charge freely to your account.

Don’t Forget!

Depending on your card issuer’s policy, cash advances, interest, and fees reduce your credit limit in addition to purchases.

Stack of credit cards on desk with high credit limits

How to Increase Your Credit Limit

Have you recently acquired a credit card, but you’re unhappy with your small credit limit? If so, here are some steps you can take to give it a boost.

Always Make Your Payment On Time

The quality of your credit history is a crucial component of your credit score, which directly impacts the amount of spending power provided to you by the card issuer.

For this reason, ensure you’re conscious of your payment deadlines and dutifully pay at least the amount required by the due date noted on your statements.

Apply this same practice to your mortgage, car loan, student loan, lines of credit, and other loan products you carry.

Most creditors report each payment you make, whether late or on time, to the credit bureaus, which compile the details to construct your credit score.

By making timely payments over an extended period, you’ll realize an improvement in your credit score, which can translate into a larger credit limit.

Pay More Than The Minimum Amount Required

While contributing at least the minimum payment on your credit card balance will keep your account in good standing, it may not be enough to bump up your credit limit.

By paying more than the minimum (preferably the total balance) each month, you signal to your card issuer that your finances are in good order and that you can easily handle your payments.

Conversely, only paying the bare minimum each month indicates you may struggle to manage a larger outstanding balance, which invariable results from a higher credit limit.

As a result, they’ll be more hesitant to raise it.

Make Improvements In Your Financial Situation

By making strategic tweaks to your income, expenses, and liabilities, you can enhance your financial standing, improving your chances of securing a credit limit increase.

Getting a higher-paying job will boost your income, leaving you with more money each month to service debt payments and reducing the risk of default.

Likewise, refinancing your mortgage to reduce your monthly payments or moving into a cheaper apartment to save on your rent expense will lessen your financial burden.

You can also decrease your reliance on other revolving credit accounts you currently use, which will lower your credit utilization ratio.

In general, a lower ratio should result in a positive credit score movement.

Ask Your Card Issuer For An Increase

One of the quickest and most efficient ways to raise your credit limit is to submit a request to your card issuer.

Usually, you can contact them by phone or through a specific portal on their website.

Here are a few rules of thumb to follow before asking for a credit limit increase:

  • Keep your account in good standing by always making timely payments
  • Wait at least one year from the date you first opened your account
  • Observe good spending habits and keep your credit utilization ratio at a reasonable level

In addition, if your card issuer has already raised your credit limit during the last 12 months or reduced it, they’re unlikely to accept your request.

You’ll need to be patient and wait.

Keep in mind that you’ll likely be subject to a hard credit inquiry, which may result in a temporary dip in your credit score.

Did You Know?

Your card provider may automatically raise your credit limit over time if you use your card wisely.

Frequently Asked Questions

  • Is a high credit limit good?
  • Is credit limit based on income?

Mark is a freelance writer who specializes in covering personal finance topics related to investing, mortgages, credit cards, and more.

He is passionate about educating people on how the financial markets work and providing tips to help them better manage their money. Mark holds a bachelor’s degree in finance from the Northern Alberta Institute of Technology and has more than a decade of experience as an accountant.

Outside of writing and finance, he enjoys playing poker, going to the gym, composing music, and learning about digital marketing.