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Experts agree there’s no such thing as the perfect credit card—each represents a compromise between costs and benefits for each cardholder. However, not all credit cards are created equal. Credit limits are one example of an important characteristic that can fluctuate dramatically among cards, and it’s important to understand high-limit credit cards and whether pursuing one is right for you.
What Is a High-Limit Credit Card?
A high-limit credit card extends a relatively generous amount of monthly credit to the user. This type of card is subject to the same credit utilization ratios as any other card, meaning a cardholder shouldn’t expect to borrow and spend anywhere near the full value of their limit. To maintain and improve credit, cardholders should spend no more than 30% of overall available credit across all accounts and ideally between 1% and 10%.
How Do Credit Limits Work?
Credit limits on credit cards are tailored to the individual credit card applicant rather than the card itself. Lenders determine a credit limit through several factors, including the prospective borrower’s credit history, perceived ability to pay (based largely on income) and the nature of current borrowing activity (credit utilization ratio, amount of debt, number of existing loans or accounts, etc.).
Credit limits are related to but distinct from available credit, also known as the available balance. While a credit limit is a fixed value indicating overall borrowing power, a cardholder deducts from available credit every time they swipe. The available credit goes back up when credit card payments reduce a balance and will match the credit limit when an account is fully up to date. Available credit can be thought of as the difference between one’s credit limit and accumulated debts, or current balance
What Does It Mean To Have a High Credit Limit?
According to a report by Experian, the average credit limit for a U.S. citizen across all their credit cards is close to $30,000. Terminology will vary on what might be considered a high limit for an individual card, and although we often deem any limit above $5,000 as high, limits can range well into the tens of thousands of dollars.
While credit limits are often compared among different credit card plans, limits can also be high or low relative to the cardholder’s overall financial standing. This way of assessing credit limits is just as important because a credit limit can be a higher amount than one might actually have available to put toward a credit card bill. This makes high credit limits something of a double-edged card with both good and bad consequences.
How To Get a High-Limit Credit Card
Apply for a higher-limit card the same way you would any other credit card. To be approved, however, you must meet the card issuer’s criteria for the credit card and limit you seek. This is based largely on your current and past credit use. Most issuers don’t allow a potential cardholder to request a specific credit limit upon application.
This means that the best way to secure a card with a high credit limit is to maintain good stats as a borrower, including credit score, debt-to-income ratio and credit utilization ratio. Perhaps most important is simply having a sufficient credit history and a good relationship with the lender. Check out our guide to increasing your credit limit for more details on requesting a limit increase from card issuers.
How Does a High Limit Affect My Credit?
When people talk about credit, they’re referring to credit history—success or failure with past borrowing—and likely referring specifically to a credit report or credit score. A credit report indicates one’s creditworthiness to a lender based on credit history, while a credit score attempts to represent this assessment with a single figure. These metrics can be impacted either positively or negatively by how one navigates credit limits.
A cardholder’s credit utilization ratio indicates spending as a proportion of your combined credit limit across all accounts and remains one of the most consequential factors used to determine credit score. The lower the utilization rate, the more responsible someone appears to lenders. The higher the rate, the more they appear in debt and risk suffering credit score losses.
Credit Card Interest Rates
A credit card’s interest rate is the added cost of borrowing money when it hasn’t been paid back in full and on time. Most credit card users can avoid paying interest so long as they make monthly payments, though carrying credit card debt and accruing interest payments is still quite common. APR (annual percentage rate) expresses how much interest a credit card charges as a yearly figure.
What Is a Good Interest Rate on a Credit Card?
The lower the APR, the better for the cardholder. Currently, the average credit card APR is over 22%, though this can vary based on the card issuer and the specific terms offered to you.
Because of the many variables in selecting a credit card, interest rates are only one factor you must consider when determining a card’s cost-effectiveness. However, good interest rates that fall below the national average are seen as desirable and should be included in the decision-making process.
Bottom Line
It’s easy to see why high credit limits remain attractive to all sorts of credit card users. Being approved for a high-limit credit card is a sign of good financial standing while working toward this represents an excellent goal for cardholders still building a robust credit history.
However, pursuing a high credit limit can still have downsides. That’s why it’s important to understand the terms of your credit card so you can use it responsibly and contribute to good credit down the road.
Frequently Asked Questions (FAQs)
What’s the difference between available credit and a credit limit?
Available credit, or available balance, describes how much of a cardholder’s credit limit remains accessible. It represents the real-time difference in value between your credit limit and your outstanding credit card charges. A credit limit is a fixed value and is a more useful metric for comparing plans.
What happens if I go over my credit limit?
Typically, your card will be declined when you attempt to make a purchase when your credit limit is exceeded. Depending on the credit card agreement, however, the card might continue to function while the issuer imposes a stiff penalty fee or penalty rate for exceeding the limit. It’s important to be familiar with the specifics of your agreement so you know what to expect.
Should I increase my credit limit?
While a high credit limit can be advantageous to one’s financial flexibility and credit utilization ratio, as described above, there may also be downsides to increasing a credit limit. Requesting a change may result in lenders making a hard inquiry on your credit report, which can be detrimental to your credit score, if only temporarily.
An increased limit also does nothing for credit utilization metrics if renewed spending keeps pace with (or exceeds) the increase, so cardholders who request a higher limit should have a goal for doing so and a clear plan for future spending. Similarly, cardholders should be sure they’re not making themselves more vulnerable to overspending before seeking an increase.
