What's a good credit limit for a credit card?
What’s considered a “good” credit limit depends on a few key factors. If you're just starting out, a good credit limit for your first card might be around $1,000. If you have built up a solid credit history, a steady income and a good credit score, your credit limit may increase to $5,000 or $10,000 or more — plenty of credit to ensure you can purchase big ticket items. Of course, this isn’t necessarily designated to just one credit card.
In this article, you will learn about:
- Why your credit limit matters
- How your credit limit is determined
- Average credit limit
- How to increase your credit limit
Why does your credit limit matter?
Your credit limit matters when it comes to having a good credit utilization ratio, which is a major factor that is calculated in your credit score. This ratio is the amount you owe towards your credit card(s), divided by your total credit card limit.
Let's say you have two credit cards, one with a limit of $5,000 and one with a limit of $2,000. On the $5,000 card you've accumulated charges of $2,500 while on the $2,000 card you've only spent $500. Between the two cards, your credit limit is $7,000, but considering your current debts, your credit utilization stands at 43% — above the recommended limit of 30%. So, the higher your credit limit, the better your chances are for lowering your credit utilization ratio, which should ideally be around 30% or lower.
Credit limits can also help indicate how much a lender finds you responsible for making back your payments. A higher credit limit allows you to make more purchases and spend more money, which comes with important responsibilities and the ability to balance out your finances. However, it does come in handy to have a high credit limit when purchasing big ticket items. It also helps keep your credit utilization lower than if you had a smaller credit limit.
How is your credit limit determined?
Both your credit score and your credit report are important factors that card issuers weigh when considering how to determine your credit limit. A higher credit score shows you have a good track record of paying your debts back and being financially responsible, so your credit limits may be higher. With regard to both credit score and credit report, the following factors are especially important to lenders as they help demonstrate your creditworthiness:
- Payment history
- Credit history
- Credit mix
Average credit limit
A single credit card can have a credit limit of anywhere from $500 to $10,000, depending on various factors like the type of card, your credit score and more.
According to Experian™, one of the three main credit bureaus, the average total credit limit across multiple cards was about $30,000 in 2021.
In 2022, the average credit limit for the baby boomer generation was about $40,000, while Gen X had about $36,000 in credit limit and millennials had an average of about $30,000.
As you can see, the older you are the better the chances you have of having a higher credit limit because of the time that’s been built up to improve your credit history, payment history and more. Gen Z, on the other hand, had about $11,290 in average credit limit as of 2022.
How to increase your credit limit
To help increase your credit limit, you may want to consider taking the following steps:
- Update your information to your issuer. Since debt-to-income ratio also helps determine limit, you’ll want to let your issuer know if you’ve gotten a raise, a new job, etc.
- Lower your credit utilization. Demonstrating that you don't need to use your entire credit limit each month is a great way to show lenders that you understand credit utilization and would be a good candidate for a higher credit limit.
- Improve your credit score. A higher credit score can help land you a higher credit limit as well as lower annual percentage rates (APRs). One way to help improve your score is by enrolling for free in Chase Credit Journey®. This will help you keep track of your score, payment history and provides you with a personalized action plan with tips to learn more about how you can improve your credit score over time.
- Request a higher credit limit. If you’re in good financial standing with your current issuer, they may approve you for a higher credit limit for your current credit card should you request one.
In summary
Remember, regardless of what your current credit limit is, it doesn’t mean you should be spending up to that amount. Be sure to keep in check your utilization ratio and focus more on your payment history. Your credit limit is helpful when it comes to making large purchases, but it's important to not spend more than you can pay back in a timely manner.
Healthy financial habits in the long run can help increase your score and, in turn, grant you access to higher credit limits, which may improve your overall financial well-being in the future.
