Credit Card Limits: What’s typical and how are limits calculated?

Every credit card has a limit on how much the cardholder can spend each month without incurring extra fees and penalties. In other words, each credit card has a credit ceiling on how much can be purchased against it, charged to it, or borrowed from the account in a given month. Exceed that limit by, for example, spending more than the stated limit and the credit card company will hit you with a fine. Keep going too far over the limit and eventually the card company may lower your limit even further while also reporting your behavior to the major credit history agencies – which will result in a lower overall credit score or FICO score.

So it is to the consumer’s advantage to have a higher credit ceiling. While typical credit card customers with a major card like a Visa or MasterCard usually start off with credit limits of $500-$1,500, others customers have credit limits that are 10 to 15 times higher than that. When you first apply for a credit card, the card issuer will study your credit report and other information regarding your income, debts, and financial liabilities like mortgages or car payments. Using that data they will do calculations to determine how much of your monthly income is spent on paying your bills – and how much of it is left over after all your obligations are paid in full. In other words they try to predict how well you can budget your money, and how much extra money you have left over. Based on those calculations they will offer you an amount of credit – or a credit limit – that they think is reasonable. They want you to use your card but they also want to ensure that you do not default or miss a payment.

Once your credit limit is established, however, you can prove to the card company that you are ready to have a higher limit by paying your balance on time each month. Do that and every six months or so the card company will raise your limit. The limits are often raised by $200 or so at a time, so over a period of 10 years of good payment history your limit might go from $1,500 to $6,000. Sometimes you can also get your limit raised by transferring a balance from another credit card. So, for example, if you transfer $2,000 to your card from a competitor’s card, your card company may agree to raise your credit limit by $2,000. Combine balance transfers with a solid payment history and you, too, may wind up with a $25,000 credit limit – which is unusually high but not impossible to achieve.
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