How is My Credit Limit Determined?

The difference between current balance and available credit is that the former refers to the amount you owe on your account, while the latter is the remaining amount of your credit card's credit line that you haven't spent yet.

Here's more info about current balance and available credit:

• Current balance
  The current balance reflects how much you actually owe in total, minus any pending purchases or payments. All of the purchases you've made that have been processed by your credit card company since you last paid your bill are included in the current balance.
• Available credit
  The available credit is the amount of your credit limit you can still use for purchases - how much you have left to spend, in other words. Once the account balance reaches the credit limit, the account has been “maxed out” and the available credit is zero. You can find your available credit on your monthly account statement or by logging in to your online credit card account.

A good credit limit is above $30,000, as that is the average credit card limit, according to Experian. To get a credit limit this high, you typically need an excellent credit score, a high income and little to no existing debt.  

What qualifies as a good credit limit differs from person to person, though. For someone with no credit, for example, a $500 credit limit is good because most beginner credit cards start off with lower limits. But for very experienced borrowers with a lot of disposable income, a good limit is much higher.

Good Credit Limits by Age Group

Note: A good credit limit is slightly higher than the average for each age range, based on 2020 Experian data.

Remember, it's best for your credit score to use 1% to 10% of your credit limit each month, and no more than 30%.

If you go over your credit limit, your credit card company may add the over-limit amount to your minimum payment, lower your credit line, or even close the account if you're exceeding the limit too often. Also, your credit score will drop if the balance is still over the limit when reported to the credit bureaus. That said, it's more likely that the card's issuer will simply decline any transaction that would result in the balance exceeding the credit limit.

Key Things to Know About Going Over Your Credit Limit

Opt-In Requirement for Fees.

The only time credit card issuers can charge an over-limit fee is when a cardholder has opted in for the ability to exceed their credit limit.

Other Fee Limitations.

Even when you've given your credit card company permission to authorize over-limit charges, a card issuer can only assess one over-limit fee per billing cycle, and that fee cannot exceed the amount by which you've gone over the limit.

Declined Transactions are Increasingly Common.

Ever since the CARD Act of 2009, which created these over-limit rules, most card issuers have stopped charging over-limit fees. Instead, they often just decline transactions that would go over your limit.

High Credit Utilization is Bad for Your Credit Score.

Credit utilization accounts for about 20% of your overall credit score. To avoid reaching your card's credit limit and risking significant damage to your credit score, consider paying down your balance more often, applying for a new line of credit, or asking your card's issuer for a credit limit increase.

To see the credit utilization on each of your credit card accounts and learn how that usage may impact your credit score, sign up for a free WalletHub account and check out the credit score simulator.

Your credit limit may be low because you're just starting out with credit and haven't built up a long enough credit history to warrant a high credit limit. It's also possible that you had a low credit score or low income when you applied for your credit card, so the issuer didn't trust you with a higher limit. Or, the card you were approved for may extend the same minimum starting credit limit to all new cardholders.

Reasons Why Your Credit Limit Is So Low

Insufficient annual income

You must demonstrate that you can afford to make at least the minimum payment every month, so you can expect your credit limit to be proportionate to your annual income.

Little or no credit history

Most issuers like to see a track record of borrowing and paying back debt on time before they will offer a high credit limit.

Bad credit score (below 640)

A poor credit score signals to issuers that you may be a credit risk. Unsecured credit cards for bad credit typically come with low starting credit limits to minimize the issuer's risk. Likewise, secured credit cards require a security deposit that determines your credit limit and serves as collateral on the account, which means less risk for the issuer.

Starting credit limit is the same for all cardholders

Some credit cards for bad credit, or even no credit, may have a standard credit limit that everyone receives upon approval, regardless of other factors.

High credit limits on other accounts from the same issuer

If you have a high credit limit on an existing credit card, you might get a lower credit limit if you are approved for another credit card from that same issuer. Unfortunately, issuers don't publicly disclose their maximum credit limits.

Pressure on the issuer's bottom line

Credit limits tend to get tighter during economic downturns, so a credit card company may assign you a low credit limit simply as a way to mitigate its credit risk.

Your credit card limit could have been decreased for several reasons, such as missing payments (including on a different card or loan) or changes in income. This could lead the issuer to assess that the risk of you missing payments in the future has increased.

Here are some possible reasons why your credit card limit decreased:

• Missed payments: If the lender detects a number of missed or late payments, they could assume that you might be experiencing financial difficulties.
• Reduced income: If your income was lost or you received a pay cut, your credit limit could be decreased to fall in line with your current income levels.
• Credit utilization: The percentage of your available credit that you use each month is called credit utilization. It is indicative of your ability to handle additional spending power. So, exhausting your allotment of credit could also lead to a credit limit decrease.
   
  The same could happen for not using your credit card much or at all over a certain amount of time.
• Issuer is reducing credit risk: Credit card issuers reduce credit limits collectively when the economy is uncertain, in an attempt to reduce credit risk.

Ultimately, it is worth noting that credit card limit decreases can often happen without notification. Therefore, it is always a good idea to check out for credit limit changes, so you don't accidentally go over your credit line.

One of the best low limit credit cards is Credit One Bank® Platinum Visa® for Rebuilding Credit. This card has a minimum credit limit of $300. With the Credit One Visa, you can earn 1% cash back on gas and grocery purchases, as well as 1% back on mobile phone, internet, cable and satellite TV services. This card accepts people with bad credit.

Alternatively, you could apply for a secured credit card, like the OpenSky® Secured Visa® Credit Card. The card's limit is at least $200, but you'll need to put down a deposit with the same amount. The OpenSky is a good card for people with bad credit who want high approval odds. That's because there is no credit check when you apply.

Here are some of the best low limit credit cards:

With a low-limit credit card, you can rest assured that you'll have access to credit in case of emergency or necessity. Plus, you won't have the temptation of over-spending yourself into debt.

Available credit is calculated by subtracting your current balance from your overall credit limit. Your current balance might consist of:

• Purchases
• Fees
• Interest

So if your overall credit limit is $1,000, and your current balance is made up of $450 in purchases, $20 in fees, and $30 in interest, your available credit will be $500:

 $1,000 – ($450 + $20 + $30) = $500

It's important to always be aware of your available credit, so you don't max out your credit card. In case you're trying to spend more credit than what's available to you, your card might get declined.

To find your card's available credit, sign in to your online or mobile banking account, or check your monthly statement.

A $200 credit line on your credit card is the maximum amount you can charge to your account, including purchases, balance transfers, cash advances, fees and interest. “Credit line” is a synonym for “credit limit” when referring to a credit card. The amount of a credit card's credit line can be found on the account's monthly statement.

Keep in mind that a $200 credit limit is common if you have limited or bad credit. Credit cards for newcomers and people rebuilding their credit often have credit limits starting at $200.

It's worth noting, though, that a $200 credit line is quite low compared to the average credit limit in the U.S. However, it's still helpful for your credit score, as long as you use the account responsibly. Plus, after six months or more of on-time payments, you can ask for a credit limit increase.

A $12,000 credit limit is good if you have fair to good credit, as it is well above the lowest limits on the market but still far below the highest. The average credit card limit overall is around $13,000. You typically need good or excellent credit, a high income and little to no existing debt to get a limit that high.  

Best High Limit Credit Cards

High limit credit cards tend to be available to people with good or excellent credit. However, even having a credit card with a relatively low credit limit is helpful for your credit score, as long as you use the account responsibly. Plus, after six months or more of on-time payments, you can generally ask for a credit limit increase.

A $4,500 credit limit is good if you have fair to good credit, as it is well above the lowest limits on the market but still far below the highest. The average credit card limit overall is around $13,000. You typically need good or excellent credit, a high income and little to no existing debt to get a limit that high.  

Best High Limit Credit Cards

High limit credit cards tend to be available to people with good or excellent credit. However, even having a credit card with a relatively low credit limit is helpful for your credit score, as long as you use the account responsibly. Plus, after six months or more of on-time payments, you can generally ask for a credit limit increase.