A lot of people consider their credit card’s usability to be as good only as its credit limit permits. Some find it to be true, especially when you have considerable plans to grow your net worth that involves a lot of credit. Would you still be able to manage a credit account with a higher credit limit? With perfect balance, you could.
What is the Highest Credit Limit?
Every credit card user, at one point, desired to have a higher credit limit. If you’re wondering how your credit limit stacks up and looking at requesting your card company to increase your limit, here’s a little information on what’s considered a normal or average credit limit and highest credit limit.
Credit limits vary depending on the type of credit card you apply for. Some card companies initially give a new applicant a starting credit limit within the range of $5,000 to $10,000, or higher if the applicant is with a high credit score.
Based on 2019 Experian data, Americans on the average have a total credit limit of $22,000. As for the highest credit limit, anyone with a high or excellent credit score could get, that limit is $100,000.
What are the Benefits of Having a Higher Credit Limit?
You could be wondering if having a high credit limit is worth it because not everyone can employ the discipline in managing such an account. It could also serve as a debt trap for others with mindless spending behaviors. But a credit card account with higher credit limit comes with real benefits including:
Lower Credit Utilization
Credit utilization is the amount of credit you actually use versus your total credit amount. To be considered a good manager of your credit account by the credit bureau, this ratio must be at least 30% or lower. Any higher than this is an indication of bad credit.
A higher credit limit lowers your credit utilization. If, for example, you have utilized $4,000 of your $10,000 credit limit, that makes your credit utilization ratio on a 40% scale. Increasing your credit limit by another $5,000 will bring your credit utilization down to 26%.
Easier to Get Additional Loans and Credit
Your improved credit utilization will automatically merit you a credit score increase. And with a higher credit score, you’ll be able to approach lenders for additional loans with ease.
Helps in an Emergency
With more credit limits now available to you, you can quickly tap on it in cases of emergency that may call for a cash advance or unscheduled but urgent purchase.
Increases Your Rewards
If you do not carry a balance on your credit cards, charging your recurring expenses on them and quickly paying them off will earn you more points for rewards. It can, later on, reduce your spending in other areas of your expenses like travels, gifts, and clothes, among others.
Helps You Make Large Purchases Efficiently
You no longer have to split your large purchases between 2 or 3 cards that often carry different interest rates – this makes paying off those large amounts harder to manage.
How Do Credit Card Companies Determine Credit Limit?
A credit limit refers to the maximum amount of credit a financial institution extends to its client. The borrower, on the other hand, can tap on this credit limit at his discretion. Borrowers can apply for any or both these two types of credit: revolving and non-revolving.
- Revolving credit line. This is considered as a dynamic financial product. As you manage your account with consistent and on-time payments, your creditor will offer you additional credit limits.
- Non-revolving credit limit. This is a type of credit that is set on a one-time agreement and with a fixed amount of credit limit. Once you’ve spent your credit limit and have paid it off, the account is closed.
Even if credit limits can go as high as $100,000 on a single account, credit card companies are never too quick to grant such limits. At the initial stage of the card application, or if you request an increase, they would first go through a process of underwriting to determine what credit limit to give you.
Click on this here to learn about how credit card companies calculate interest on credit cards!
The underwriting process varies from company to company, taking into account their own methods of mathematical calculations and credit analysis. The procedure is not revealed to the public as the process also indicates how the company manages the credit risks while making money. The general principle applies: the higher the credit limit, the more the company trusts the borrower.
Factors That Card Companies Consider to Pick Your Credit Limit
Type of Credit Card
Some credit cards have predefined features. The more features the credit card carries, the higher is its requirement for a good credit score to be approved.
While this is a consideration, having a high income doesn’t always mean getting a large credit limit. Itis because your income is just as good as its current status, and any change in economic condition may likewise affect it.
This ratio indicates your income versus the total amount of your outstanding debts. What lenders consider a good ratio is any number lower than 36%.
Any trace of negative information on your credit report, most especially late payments and high balances, will make it less likely that you’ll get approved for a higher credit limit.
Other Credit Lines on Existing Credit Accounts
They would like to see how much credit line from other accounts you were able to manage successfully.
Co-applicant Income and Credit Information
Applying for a new credit card with a co-signer with a good credit history enforces the probability of being approved with a high credit limit.
Value of Security Deposit
Your security deposits in secured credit card applications will help to back that line of credit you’re seeking. Some card companies give you a credit limit with an amount that is equal to your security deposit, while others give twice as much.
How to Request For Higher Credit Limit?
Having a higher credit limit gives you enough wiggle room when it comes to your credit and finances. And if your credit score merits it, why not consider requesting a higher credit limit?
Keep in mind that most card companies do not automatically raise your credit limit until you’ve made 6 to 12 months of on-time payments and haven’t exceeded your credit limit. Likewise, requesting a higher credit limit may hurt your score a bit because your card company will have to make a hard pull on your credit report. Be sure to check on your credit report and credit score prior to making a request and see if all your credit information there is correct.
Here are the steps on how you can request for credit limit increase:
- Contact your card company’s customer service
- Provide personal and credit information for verification
- Make the request
- Log on to your card issuer’s online banking service
- Update your personal details in the system
- Make the request
- Sometimes the issuer will prompt an auto-reply to indicate receipt of the request.
- Wait for the issuer’s decision via email.
When it comes to increasing your credit limit, really consider your overall financial picture first. A credit limit that you want does not always mean it is what you need. If imagining a higher credit limit takes you instantly to dream destinations and luxurious spending, then you might just be setting yourself up for more debt than you can afford. On the other hand, you think of your higher credit limit as a means to spend for income-generating assets, then that request may probably be in order.