As prices on everyday items continue to rise, more Canadians are looking for credit cards with higher spending limits. But what exactly is a high-limit credit card, and how does it differ from a standard credit card?
This article explores the ins and outs of high-limit credit cards, how credit limits are determined and offers tips for increasing credit limits.
Understanding High-Limit Credit Cards
First, let’s define what a high-limit credit card is. Essentially, this type of credit card offers a significantly higher credit limit than a standard credit card.
While exact figures on credit limits in Canada are somewhat elusive, high-limit credit cards typically carry limits that exceed $10,000 or $20,000. For comparison, a recent Equifax Report indicates the average credit limit in Canada is around $5,800.
Credit limits are based on several factors, including personal income, employment history, debt-to-income ratio, credit history and score, and credit utilization. You’re more likely to qualify for a higher credit limit if you have good or excellent credit. Banks consider a strong credit score and history as a low-risk opportunity for a high-limit credit card.
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What Is the Highest Credit Limit You Can Get?
Since providers rarely disclose credit limits, it’s hard to say what the highest credit limit is in Canada. However, some cardholders report getting limits over $50,000 or $100,000. Some card limits can be upwards of $500,000, but this is rare.
Generally, high limits are not tied to particular credit cards in Canada, so there are very few cards that are considered to have a high limit. Instead, high credit card limits are tied to the immaculate credit of the individual applying to have or being granted the high limit, regardless of the card.
Among the few high-limit credit cards known to exist, The Platinum Card® from American Express is often cited as having the highest credit limit in Canada. This premium charge card has built-in travel perks and no preset credit limit.
Unlike a regular credit card, where you can carry a balance as long as you make the minimum monthly payments, The Platinum Card® is a charge card. That means statements must be paid in full every month. For disciplined cardholders, this can mean a six-figure spending limit. On the flip side, a no-limit card can make overspending a lot easier if you’re not careful.
Another well known high-limit credit card is the Amex Black Card. However, this card is invite-only, has a high minimum spending limit and is hard to find concrete information on. It’s largely considered to be the go-to credit card for elite spenders.
How Are Credit Limits Set?
Credit card issuers consider a range of factors when determining a cardholder’s credit limit. This limit is the maximum amount you can spend (or borrow) on a credit card. Understanding the variables that influence credit card issuers is crucial to getting a high-limit credit card in Canada.
Personal Income
How much money you make is directly tied to how high your credit card limit can be. Typically, individuals who make more money will get a higher limit. Having a steady job can also increase your credit limit. This is how issuers decide if you can comfortably make credit card payments.
Credit History
Credit card issuers will look at your credit history to see how you manage money and debt. A record of on-time payments for bills, credit cards and loans will generally qualify for higher credit limits. Any outstanding debts, late payments or unsuccessful loan applications will lead to lower limits.
Credit Score
Your credit score tells lenders how likely you are to default on payments. Being categorized as someone with “good credit” (660 to 724) makes you less of a credit risk. In exchange for a high credit score, issuers will approve a higher spending limit and potentially lower fees.
Debt-to-Income Ratio
Making decent money doesn’t mean much if you can’t cover expenses. Your debt-to-income ratio (DTI) indicates how much debt you have compared to how much money you bring in. Lenders are more comfortable approving higher credit limits if your DTI is under 40%.
Credit Utilization
Credit utilization gives issuers a direct view into your credit card balances and available limits. High utilization is a red flag that you’re maxing out credit cards and struggling to make payments. Aim for a credit utilization ratio of 30% or less ($10,000 Limit x 30% = $3,000 Balance).
Related: How to apply for a credit card
What Are the Benefits of a Higher Credit Limit?
Higher credit limits offer more flexibility for making purchases, paying bills and building credit. This can be particularly useful in emergencies or for financing larger purchases that you can pay off over time without dipping into your savings. Most high-limit credit cards are associated with premium perks and rewards in addition to the benefits listed below.
- Lowers credit utilization rate: Higher credit limits mean there is more available credit, which can reduce the amount of credit you’re using in relation to the overall balance.
- Improves credit score: Lower credit utilization indicates that you’re using credit responsibly, which can positively impact your credit score.
- Earns higher rewards: Making frequent or large purchases can maximize earn rates on rewards and cash-back credit cards.
Potential Downsides of High-Limit Credit Cards
Accepting a high-limit credit card without weighing the challenges can put your finances at risk. Steep annual fees and interest charges can create a domino effect that ends up increasing your credit utilization ratio. Consider your spending habits, financial goals, and possible setbacks mentioned below when deciding whether to apply for a high-limit credit card.
- Higher fees: Annual fees and other costs for balance transfers, foreign transactions, and cash advances add up over time.
- More Interest: Going over the credit limit or only making minimum payments can accumulate expensive interest charges.
- Unmanageable debt: Higher balances can lead to overspending and late payments that end up damaging your credit score.
Tips for Obtaining a High-Limit Credit Card
- Pay credit card bills by the due date
- Remit more than the minimum payment
- Maintain a good credit score
- Avoid carrying a high balance
- Keep your account for six to 12 months
- Increase income and reduce debt
- Check credit reports for errors
How To Get a Higher Credit Limit?
If you have maintained good standing, improved your credit score, increased your income and used your credit card responsibly, it may be time to ask for a credit limit increase. You can typically do this online or over the phone.
Requesting a limit increase of 10% to 25% is considered reasonable. If you meet the requirements, the issuer will likely approve a higher credit limit. Even if the increase is less than you expected, it can still have a positive impact on your credit score.
Related: How To Get An American Express Credit Limit Increase
Bottom Line
High-limit credit cards can offer financial benefits and premium perks, but it’s essential to understand the implications and responsibilities that come along with credit limit increases. Always check for annual fees and hidden costs before applying to avoid unexpected charges. Once approved, pay bills on time, maintain a good credit score, and practice responsible spending habits to maximize the advantages of high-limit credit cards.
Frequently Asked Questions (FAQs)
Is it good to have a high credit limit?
Having a high credit limit can be beneficial under the right circ*mstances. Higher credit limits can lower your credit utilization ratio, potentially boosting your credit score. Increasing the amount of available credit can also be a source of emergency funds for unexpected purchases.
How many credit cards can I have at once?
Generally speaking, there is no limit to the number of credit cards you can have as long as you manage them responsibly. However, having too many credit cards could be a sign of overextending yourself financially or falling into debt.
Should I increase my credit limit?
When it comes to deciding whether or not to increase your credit limit, it is important to consider several factors. Start by assessing your financial situation and ability to pay off existing debts in a timely manner. If you’re not able to keep up with current payments, increasing your credit limit may put you in a difficult financial position.
What happens if I go over my credit limit?
If you go over your credit limit, you could be subject to a few different penalties. Depending on the issuer, you may incur an “over-the-limit” fee or a penalty APR (annual percentage rate). You could also be charged a fee for any transactions that are declined due to going over the limit.
