The 4 Biggest Factors That Decide Your Credit Limit

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When you fill out an application for a new credit card, the card issuer will let you know if you qualify to open the account. If you’re eligible for a credit card, your application details also help a credit card company set the terms of your new account, including your credit limit. 

Equifax reveals that the average credit limit for credit cards issued in March 2022 was $5,049. However, new subprime cardholders were issued an average credit limit of $865. And depending on your situation, it may be possible to receive a credit limit that’s far above average. There can be significant differences in the credit limits that credit card companies extend to different customers. 

Factors like your credit score, income, payment history, credit utilization, and more can play a role in the credit limit a credit card issuer assigns you when you open a new account. Here’s a deeper look at some of the details credit card issuers consider when they set your credit limit, and steps you can take to potentially qualify for higher credit limits in the future.

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Chase Sapphire Preferred®

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• Our Rating 5/5 How our ratings work Read the review
• APR21.49% - 28.49% (Variable)
• Annual Fee$95
• Sign Up Bonus 60,000Chase Ultimate Rewards Points More Info

  Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. Dollar Equivalent: $1,380 (60,000 Chase Ultimate Rewards Points * 0.023 base)

The Chase Sapphire Preferred Card is one of the gold standards for earning travel rewards. It has a generous sign-up bonus and you can earn points on travel and dining expenses. The card does have an annual fee, but you can continue earning points through bonus categories and an anniversary points boost.

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• Pros & Cons

Overview

The Chase Sapphire Preferred is pretty flexible as it lets you transfer rewards points into miles or points several airlines and hotel programs. You can take advantage of strong transfer partners such as United, Southwest, Singapore Airlines, Virgin Atlantic and Hyatt. Similarly, you can book any reservation you want through the Chase Ultimate Rewards travel portal. Although the card might not be ideal for the most frequent travelers, it has a built-in upgrade path, so when it’s time to level up your travel rewards game, you won’t have to start from scratch.

Pros

• Points are easily transferable to airlines and hotel partners
• Accelerated earnings on dining, travel & household purchases
• Excellent travel and purchase protections
• No foreign transaction fees

Cons

• Not ideal for the highest spenders
• $95 annual fee

Ink Business Preferred® Credit Card

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• Our Rating 4.5/5 How our ratings work Read the review
• APR21.24% - 26.24% (Variable)
• Annual Fee$95
• Sign Up Bonus 100,000Chase Ultimate Rewards Points More Info

  Earn 100,000 bonus points after you spend $8,000 in the first three months Dollar Equivalent: $2,300 (100,000 Chase Ultimate Rewards Points * 0.023 base)

Those with travel and advertising expenses will like the high earning rates in these categories, plus cardholders can eke out even more value with fully transferable rewards through the Chase Ultimate Rewards portal. One drawback is the modest annual fee, though many can offset this with the card’s earning potential.

• Overview
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Overview

This card offers a whopping 100,000 bonus points after you spend $8,000 in the first three months — with the card’s 25% bonus on travel booked through Chase, that’s worth $1,250. But you could potentially get more through one of the bank’s transfer partners. The rewards you earn from the Ink Business Preferred Card can be transferred to 10 different airline partners including United, Southwest, Virgin Atlantic, Singapore and British Airways, as well as hotel partners Hyatt, Hilton and Marriott.

Unlike the other two Ink Business cards, you can use this card to transfer your rewards directly to airline miles and hotel points. Travelers may also like this card’s cellphone protection policy that will cover up to $600 per claim.

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• 3x points on 5 different categories (up to $150,000)
• Robust travel, purchase and cellphone protections
• Ability to earn transferable points to use on travel partners
• No additional charge for extra cards for additional authorized users

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• $95 annual fee
• Businesses that don't spend on the category bonuses won't benefit

Chase Freedom Unlimited®

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We like that the card offers a high flat rewards rate but also provides accelerated rewards on some common everyday spending categories. You’ll also get access to the Chase Ultimate Rewards Travel portal, which allows you to use your cash-back earnings for travel rewards, gift cards and more. If you make this your primary card for most purchases you can quickly rack up a lot of rewards.

• Overview
• Pros & Cons

Overview

The Chase Freedom Unlimited card is unique for a couple of reasons. First, it comes with purchase protection and extended warranty protection you don’t see with some other cash-back cards. Second, you earn cash back in the form of points (Chase Ultimate Rewards) and when paired with another annual-fee earning Chase product, you can get even more value if you love to travel by transferring to partners.

That’s because while the Freedom cards are marketed as cash-back credit cards, they actually offer points. You can use those points to book travel through Chase at a rate of 1 cent per point. But if you have the Chase Sapphire Preferred® or Chase Sapphire Reserve®, you’ll get 25% and 50% more value on those travel redemptions, respectively. (Plus, the ability to transfer your points, too.)

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Pros

• No category bonuses to remember; earn at least 1.5% back on everything
• No annual fee
• Generous travel and purchase protection benefits

Cons

• Can't transfer Chase points unless paired with another annual-fee Chase product

1. Credit Score and Credit History

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It should come as no surprise that your credit information — both credit scores and credit history — matters to credit card issuers when they set your credit limit. The credit history on your credit reports reveals how you’ve handled credit obligations in the past. Meanwhile, the job of a credit score is to help lenders, credit card issuers, and others predict how likely you are to pay bills late (by 90 days or worse) anytime in the next 24 months. 

Clean credit history and a good credit score should make it easier to qualify for a higher credit limit (though other factors come into play as well). However, if you have negative derogatory information on your credit report or a bad credit score, you’re more likely to receive a lower credit limit from a credit card company, and a higher interest rate too. 

Below are the average credit limits consumers received in 2020 on new general purpose credit cards based on their credit score range.

2. Capacity to Pay

Credit scores measure the likelihood that you’ll make payments on time. But credit card issuers also want to confirm that you can afford to take on additional debt. As a result, they will evaluate your income and existing debts, also known as your debt-to-income or DTI ratio, when setting your credit limit.

Income doesn’t show up on your credit report. Therefore, a credit card issuer will ask you to include this information on your application for a new account. In some cases, you might have to verify your income with documentation. But that’s the exception, not the rule. 

With credit card applications, you’re also allowed to include income from other household members (like a spouse). However, you must have reasonable access to the funds before you can list them on your credit card application. 

To calculate your DTI ratio, divide your monthly debt payments by your gross monthly income. Lenders often like to see applicants have a DTI ratio below 36%. So, if your goal is to qualify for a higher credit limit on your next credit card application, taking steps to decrease your debt, increase your income, or both might work in your favor.

3. Credit Card Management History and Usage

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Not only do credit card issuers look at your overall credit history, but they also take a closer look at any credit card accounts — current and closed — that appear on your credit report. Here are some of the details credit card companies may consider as they review your credit card history in particular: 

• Payment History: Do you have late payment history on any of your credit cards? 
• Credit Utilization: How much of your current credit card limits are you using? (The lower your credit utilization rate, the better.)

It’s common for credit card issuers to use credit scoring models that place more emphasis on how you’ve managed your credit cards in the past compared with other credit obligations (car loans, mortgages, student loans, etc.). Therefore, if you’re hoping to qualify for a higher credit limit on a new credit card, it could be helpful to have some previous, positive credit card management history on your credit report. 

Slick tip: Having multiple credit card accounts might also benefit your credit scores, if you manage the accounts responsibly.

4. External Factors

When a credit card issuer sets your credit limit, it may also consider some factors that are outside of your control. Economic conditions can impact underwriting decisions. Pending legislation has the ability to influence the decisions that credit card issuers make as well. 

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Credit card issuers may even decrease the credit limits of their existing customers during times when credit risk is on the rise. For example, during the Great Recession and the COVID-19 pandemic, credit card companies lowered available credit limits by a median around 75% according to CFPB research.

Bottom Line

It’s helpful to learn the details that credit card companies consider during the underwriting process. If you use this information to your advantage, you can potentially qualify for better credit card offers, lower interest rates, and even higher credit card limits when you apply for new credit card accounts in the future. 

If you already have credit cards open, it may be possible to ask for a credit limit increase on those accounts as well. But no matter how high your credit limits may climb, it’s important to pay off your full balance by the due date each month to avoid interest charges and protect your credit scores.