What is the average credit card limit? How is it calculated?

What is the average credit card limit? How is it calculated?
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Point Editorial

If you’ve ever used a credit card, you know there’s a limit to how much you can spend. 

Without a credit limit, spending can quickly get out of hand, leading to increased credit card debt, compound interest, bad credit, and eventually, default, making it no surprise that credit card companies set a ceiling on the amount of credit they extend to their users.

But have you ever wondered how that limit gets calculated or what the average spending limit is? Why do some people have a $1000 limit while others have $10,000 or more?

We’re here to help. Read on to learn about credit limits, how they’re calculated, and the average limit for different age groups. We’ll also give you pointers on how to increase your credit limit.

Understanding Credit Card limits

When you use a credit card, you’re spending money lent to you by the credit card company. Your credit card limit establishes the maximum amount you’re allowed to spend with your card before having to pay back the loan. 

The higher your credit limit, the more you can spend every month before you have to pay your bill.

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How do card issuers determine credit limits?

Credit card companies will typically calculate your credit limit when you first apply for a card, then review it about once a year to determine whether to increase, decrease, or maintain your limit.

When you apply for a credit card, the card issuer will often ask you to fill out a form that outlines your financial situation. Many companies will also inquire into your credit report and use your credit score as a determining factor. 

There are three basic ways to determine credit limits: 

  • Predetermined credit limits
  • Customized credit limits
  • Credit-based limits

Predetermined credit limit

Cards with predetermined credit limits offer the same preset spending limit to anyone who qualifies for the card. You still have to meet the minimum income and credit score requirements, but your credit limit won’t be calculated based on those factors.

Customized credit limit

In addition to your credit report and credit score, some credit card companies use other financial information — like your debt-to-income ratio — to calculate the risk of offering you a specific credit limit.

The information that companies might use to customize your credit limit includes your employment status, annual salary, rent, mortgage payments, outstanding loans, and other bills.

Credit-based limit

Lenders often look at your credit report and calculate the limit they offer you based on the information it contains. If you have good credit, you’re more likely to get a higher credit limit.

Several important factors can influence your credit-based credit limit:

Payment history

If you have a history of making your credit card payments on time, the card issuer will be more confident lending you money. If you regularly miss payments or pay them late, the company will likely offer you a lower credit limit or deny you altogether.

Length of credit history

A longer credit history usually results in a higher credit limit because it’s likely to include more examples of timely payments.

Credit utilization

Your credit utilization rate is the percentage of your available credit that you actually use. If you already have active credit card accounts, the issuer will calculate the amount of money you’ve spent against your overall available credit. If they determine that your credit utilization ratio is too high, they may offer you a lower limit.

Recent hard inquiries

Hard inquiries occur every time you ask for credit. Too many hard inquiries on your credit report might give the impression that you’re a credit risk, so be careful not to make too many requests over a short period.

Average credit card limits 

You might be wondering how your credit limit compares to the national average or to that of other people in your age range.

Recent data from the credit bureau Experian shows that the average American has $31,015 in total credit limit across all their credit cards. The same data shows that the average credit card balance (amount owed) was $6,194. That means the average credit utilization ratio in the U.S. is roughly 20%.

FICO, one popular credit scoring model, tracks its averages. The following chart shows the average FICO score and average credit limit across five different age groups:

Generation Average FICO Credit Score Average Credit Limit
Generation Z (ages 18 to 22) 667 $8,062
Millennials (ages 23 to 38) 668 $20,647
Generation X (ages 39 to 54) 688 $33,357
Baby Boomers (ages 55 to 73) 731 $39,919
Silent Generation (ages 74 and up) 756 $32,338

*Source: Experian data from Q2 2019

The longer your credit history, the better your credit score, which explains why older age groups tend to have the best credit scores and highest credit limits.

How can I increase my credit limit?

If you want to increase your credit limit, there are two things you can do: make a request for a higher limit or wait for your credit card company to offer you an increase.

Both options require the card issuer to review your credit history and reevaluate your creditworthiness. 

Request a higher credit limit

Many credit card issuers let you request a credit limit increase through your online account or mobile app. You can also call the number on the back of your card to inquire. 

Wait for your card issuer to offer a higher limit

Credit card companies perform reviews on cardholder accounts about once a year. If you’ve made your payments on time and kept your account in good standing, they will likely contact you with an offer. 

There are a few things you can do to improve your chances of receiving an increase: 

Improve your credit score

To improve your credit score, you should pay all your bills on time, limit your new credit accounts, and keep your credit utilization ratio low (below 30%).

Boost your income

When your income increases, it lowers your debt-to-income ratio and improves your chances of getting a higher credit limit. Be sure to let your credit card company know if you’ve received a raise or have changed to a better-paid job so that they can update your file.

The advantages and disadvantages of raising your credit limit

The most obvious advantage of a higher credit limit is the ability to spend more with your card. But if you don’t increase your spending, a higher credit limit will also improve your credit utilization ratio, which boosts your credit score.

On the other hand, requesting an increase to your credit limit will cause a slight dip in your credit score because it adds a hard inquiry to your credit report. If you end up spending more with your card, you’ll end up paying more in interest, and your credit utilization ratio will worsen. 

You shouldn’t request a new card or higher credit limit only to make large purchases and spend more. Instead, try to pay down the balance on your card before making a request.

Do I have a bad credit card limit? 

You don’t need to worry too much about your credit card limit. A lower-than-average limit isn’t necessarily a bad thing, and getting a high credit limit isn’t always the best idea. The most important thing is to keep your credit utilization low.

Over time, if you take care of your personal finances, practice good money habits, and keep your accounts in good standing, your credit limit will increase on its own.

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Point Editorial
A group of writers, thinkers, & designers from varying backgrounds — all part of the PointCard team. Sharing perspectives on concepts in design, finance, and culture through an everyday lens.
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