How to Position Yourself for an Increased Credit Limit
Every credit card has its own credit limit — the maximum amount of money you're able to spend. Your credit card limit is influenced by several factors, like your personal credit history, as well as your relationship with your credit card company. Learning how your credit card limit is determined not only makes you better informed, but could help you increase that limit and improve your overall financial outlook. If you’re looking to increase your credit card limit and optimize your finances, try utilizing a few key strategies.
Understanding Your Credit Card Limit
To determine your credit limit, credit card companies use the information you provided on your card application, as well as their own policies. This information includes your credit score, payment history, and length of time your account has been open. Credit card companies also assess several past and present personal financial indicators to determine your credit limit, including:
- Your credit report (to see how you've handled past lines of credit)
- Other credit card limits you've been granted
- Your current debt
- Your income
Credit card companies have internal limits for each type of credit card. If you apply for what's considered an "elite card," there may be no preset limit. Other cards may have a minimum credit card limit. Fluctuations in your credit card limit are part of the credit-building journey, and often, the limit you start with could change over time.
How Your Credit Card Limit Is Calculated
Your credit limit is calculated based on your financial status, your credit history, and even macroeconomic factors that can affect risk appetite. Typically, card issuers use information like your debt and income levels, payment and account history, and credit score and report to determine your credit limit, although these factors can vary between issuers. Your credit limit is determined after you've been approved for a credit card.
- Debt and income levels: Card issuers will review your debt and income levels to determine your ability to pay and how you manage debt and expenses. Specifically, they will calculate your debt-to-income ratio to see how your monthly gross income compares to your monthly debt payments.
- Payment and account history: Your past record of making credit payments will also be assessed. Issuers can see whether you have a track record of making full, on-time payments, what your credit limits are on existing accounts, how long you’ve held accounts, and even whether you’ve filed for bankruptcy.
- Credit score and report: Card issuers receive reports from major credit bureaus which contain your credit score and credit history. A positive credit score and credit utilization rate may result in a higher credit limit, while negative figures or a limited credit history may result in a lower credit limit.
- Macroeconomic factors: The broader economy can also impact lenders’ willingness to take on risk. In times of economic uncertainty or downturn, underwriting standards can change and approved credit limits may trend downward.
Factors that Could Increase Your Credit Card Limit
When your card company increases your credit card limit, it can be a positive sign of maintaining good credit. As a borrower, if you are looking to request a credit card line or receive a credit card limit increase, here are some ways to improve your chances of raising your credit card limit.
Pay Down Your Debt
Paying down debt may raise your credit score, which makes a credit card limit increase more likely. This can also make a good impression with your credit card company by showing your ability to quickly pay back what you borrowed.
Increase Your Income Level
Additional income can improve your odds. Whether it’s a pay raise or an additional income stream, if you're able to increase your income from the time you first applied for the card, you may have good reason to request a credit line increase.
Keep a Low Credit Utilization Rate
Keeping your credit utilization rate at 30% or less is ideal, especially if you're planning to make large purchases in the future, such as a house or car. Having a lower credit utilization rate and a higher credit score could help you get more preferable loan terms and may increase your chances of a credit line increase.
Automatic Credit Line Increase
Sometimes, your card company will increase your credit card limit automatically. When this happens, you'll receive a notification letter detailing the increase. Otherwise, to increase your limit, contact your credit card company to request one. There are several actions you can take to help you negotiate a higher credit limit, including the strategies outlined above.