The 4 Biggest Factors That Decide Your Credit Limit

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

The average credit limit for credit cards issued in March 2022 was $5,049, according to Equifax. But depending on your situation, it may be possible to receive a credit limit that’s far above or below average. Your credit score, income, payment history and credit utilization impact credit limit you get. 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 limits in the future.

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1. Credit Score and Credit History

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Both credit scores and credit history matter to credit card issuers when they set your credit limit. The history on your credit reports reveals how you’ve handled credit obligations in the past. Plus, 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) over 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 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. 

2. Capacity to Pay

Credit scores measure the likelihood that you’ll make payments on time. But credit card issuers also want to confirm 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, so an issuer will ask you to include this information on your application. In some cases, you might have to verify your income with documentation. But that’s the exception, not the rule. You can also 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. 

3. Credit Card Management

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Credit card issuers also look at your current and closed credit card accounts that appear on your credit report. They may look at factors like you:

• Payment history: Issuers want to see how much late payment history you have on your cards. Less is better.
• Credit utilization: How much of your current credit card limits you use is also a consideration. The lower your credit utilization rate, the better.

It’s common for 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 (like car loans, mortgages or student loans). If you’re hoping to qualify for a higher credit limit on a new card, it could be helpful to have some previous positive card management history on your credit report. 

Having multiple credit card accounts might also benefit your credit scores, provided you can afford to pay off what you charge and can keep your accounts organized and bills paid on time. It's never a good idea to juggle so many cards that you end up going into debt, but the perks of cards, plus their ability to help you build your credit score, can make them worthwhile.

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4. External Factors

When a credit card issuer sets your credit limit, it may also consider factors that are outside of your control. For example, economic conditions can impact underwriting decisions. And pending legislation has the ability to influence the decisions that credit card issuers make too. 

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 reserach from the Consumer Financial Protection Bureau.

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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. But no matter how high your credit limits are, it’s important to pay off your full balance by the due date each month to avoid interest charges and protect your credit scores.