What is a Good Credit Limit?
Key points about: good credit limits
Your credit limit is determined by several factors, including your credit history, income, and debts.
Your debt payment history, amounts owed, credit mix, and other factors all make up the calculations for your credit score and, eventually, the credit limit offered to you.
Responsible credit use may result in your lender providing you a larger credit limit.
If your application for a credit card is approved, one of the first pieces of information you’ll receive is your credit card limit, which is the maximum amount of money you can charge. You may be asking yourself, “What is a good credit limit to have?” Unfortunately, the simple answer is: It’s different for each person.
Credit card limits can vary greatly, sometimes by thousands of dollars. So, if you’re granted a $500 credit limit, is that “bad” compared to a $10,000 limit? Or is a lower limit better? Consider these guidelines to help you understand what’s a good credit limit for you.
How is your credit card limit determined?
There are a variety of factors that can influence your credit limit, including:
- Current income, debts, and your debt-to-income ratio (DTI), which compares the total amount you owe to what you earn;
- Credit history and credit score;
- History with the creditor you are applying to;
- Creditor’s goals and the current economic environment.
How credit limits affect your credit score
Your credit score is based on a variety of factors and inputs, some of which are related to your credit limit. For your FICO® Score, payment history typically makes up the largest category of the total calculation, while amounts owed is still a considerable factor in the FICO® Score calculation.1 Other considerations are length of your credit history, your credit mix (having accounts such as mortgages, loans, and credit cards), and new credit (or credit inquiries received from new creditors). In addition, other factors like credit utilization rate may be taken into consideration.
So, for example, if your balance is around $500 and you have a high credit limit, such as $5,000, your credit utilization ratio will be low, and that can be beneficial to your credit score. If your credit limit is only $1,000, and you have the same $500 balance, your credit ratio will be higher, which could lead to a lower credit score.
Credit limits for secured credit cards
Did you know?
A secured credit card requires a security deposit, which is used as collateral for your credit limit. For example, the Discover it® Secured Card requires a refundable deposit, which will equal your credit limit. So, a good limit for you would take into account whether you can afford a deposit in that amount.
Is it good to change to a high limit?
If your credit needs have changed since you first got your card, you may be able to make a case for a credit limit increase by reaching out to your credit card’s customer service department or going to the credit card issuer’s website to make the request online.
Among other criteria a cardholder must meet, the issuer may also consider whether the card has been used responsibly overall, such as the cardholder paying bills on time and avoiding maxing out the card.
Keep in mind though, a request for a credit limit increase may result in the credit card issuer placing a hard inquiry on your credit report, which could impact your credit score.
So, what’s a good credit limit to have?
In the end, there’s no such thing as a “good” or “bad” credit limit—it depends on the individual account holder’s use of their credit card.
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