Your credit limit might not be something you think much about, but it can have a big affect on your finances and credit. From the basics to learning how to increase credit card limits, here’s what you need to know.
What is a credit limit?
A credit limit is the highest amount a creditor has approved you to borrow on a line of revolving credit, like a credit card.
Usually, the lender will determine your credit limit when you open a credit card. A financier might also refactor a credit card limit while the credit line is open. If the borrower has become more creditworthy, a lender will often increase the credit limit.
Why your credit limit matters
So why is your credit limit important? It’s the total limit you can borrow, which can affect how you use your credit card.
Some people might need a higher spending limit because they charge quite a lot to their credit cards, or they might rely on personal lines of credit to bridge the gaps between fluctuating paychecks.
A lower limit can be a wise cap on borrowing. It prevents a borrower from racking up a credit balance that’s too high for the borrower to pay back. It also protects the lender from paying out money and losing it to a borrower who can’t repay it.
Your credit limit and credit utilization ratio
Your credit limit is also important because it affects your credit score. Credit utilization is a number that measures how much you have borrowed (your credit card balance) to how much you could borrow (your credit card limit).
This plays a big role in how your credit score is calculated. Typically, lenders want to see a credit utilization of 30 percent or less.
With a higher credit limit, you’ll have an easier time keeping your balances under that benchmark. This will help improve your credit score and make you a more qualified borrower in the eyes of lenders.
How lenders set your credit limit
Lenders look at several factors to set a credit limit. Each lender follows guidelines and limits for their own products, as well as industry standards. A lender will consider a borrower’s credit history and financial situation to determine an appropriate credit card limit.
Credit limits that are low-risk
Lenders are interested in balancing returns and risk. The higher an account holder’s credit card limit, the more they can borrow — and the more money the lender will lose if the borrower defaults.
To limit their risks, creditors often turn to industry standards to see how other lenders are handling credit limits. They might even look at your credit history and see what credit card limits other lenders have set for you specifically.
Lenders will first follow their own internal guidelines for their credit cards or lines of credit when setting credit limits. Some lenders are more willing to take on the risk of setting higher credit card limits. Others are more risk-averse and have lower borrowing limits for all its customers.
The type of credit card you choose
The credit limit you get on a card is often a reflection of the credit card you have and how lenders expect it to be used.
Cards designed for big spenders will have higher spending limits, for example. A credit card meant for building credit, on the other hand, will usually have a lower credit limit.
A credit card issuer will also often have built-in “tiers” or preset rules for credit card limits.
When Chase, for example, processes applications for its Freedom card, it can approve borrowers for either a Platinum or Signature Freedom card. These each have different spending limit guidelines; the Platinum card has a credit limit of at least $500, while the Signature starts credit limits at $5,000.
Your credit history
Whether you get approved for a credit card will also depend on your credit history and score. These can also influence the credit limit you’re offered.
A lender will be interested in your credit payment history, which can usually be found on your credit reports. They will want to see that you’ve responsibly made payments on-time — the longer your history of doing so, the better.
Many lenders will also consider your credit score when deciding how to set your credit limit. The higher your score, the better.
Your income and other financial factors
In addition to your history of paying off debts, lenders will also look at your current financial situation.
They want to make sure that your income is high enough, and your debts and other financial expenses are low. This will show that you can reasonably afford to pay down a higher balance if you have a higher credit limit.
How to increase credit limits on your accounts
A higher credit card limit is important to your credit and spending habits. Even if you initially get a lower limit, this is often flexible and can be raised. If you want to increase your credit limit on a credit card, here’s how to do it.
Use your credit responsibly for an automatic credit limit increase
Often, a credit card company will actually offer you a higher credit limit once you’re an established customer.
They monitor for responsible borrowing behavior like not charging too much, paying off balances, and making on-time payments. A credit card company will usually need to see these habits over time — at least three months, but typically over six months.
If you keep up responsible borrowing behavior for that period, many credit card companies will automatically increase your credit card limit. You’ll be notified that it’s gone up.
Your higher credit limit should also be reflected on your monthly statements, online account login, and your credit reports.
Ask your lender to increase a credit limit
Maybe you’ve kept your account in good standing for six months but your credit card limit hasn’t gone up. You may have luck if you simply ask your lender to increase your credit limit.
Call customer service and ask if a representative can process your request to increase credit limit by phone. Credit card companies may also have applications to increase your spending limit on their site.
You might have to resubmit your financial information, including your income and other debt information. This can work in your favor if you’ve gotten a raise or paid down other debts since opening the account.
Work on improving your credit
If your request to increase credit limit is denied, don’t give up. There are certain steps that will help almost anyone improve their credit and boost their chances of getting a higher borrowing limit.
In a guide for credit line increases, Capital One suggests that its customers make on-time payments each month. It will also help to make higher payments on your account to pay off balances faster, rather than simply paying the minimum.
You’ll also need to make sure that you’re keeping up with other debts as well. If you miss a student loan payment, for instance, that could be a sign to a credit card company that you’re stretched too thin.
Lastly, you can work to increase your income. If you switch to a higher-paying position or get a raise, you can update your credit card company on this development. Your new income information could help you qualify for an increased credit limit.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.36% APR (with Auto Pay) to 7.82% APR (with Auto Pay). Variable rate loan rates range from 2.41% APR (with Auto Pay) to 6.99% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for SoFi.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.45% effective May 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.41% – 6.99%1||Undergrad & Graduate|
|2.41% – 7.89%2||Undergrad & Graduate|
|2.43% – 6.65%3||Undergrad & Graduate|
|2.38% – 6.81%4||Undergrad & Graduate|
|2.41% – 8.19%5||Undergrad & Graduate|
|2.60% – 9.60%6||Undergrad & Graduate|