For Americans, the average credit limit currently sits at $28,930, according to Experian. That’s the typical maximum amount that a cardholder can spend on the card before needing to pay the credit card’s balance. A credit limit is sort of like a loan maximum — the higher the credit limit, the more money the cardholder can charge on the credit card.
If you know your credit limit, you may be wondering how it compares to the average credit card limit. Read on to find out, and to learn how you may be able to increase your credit limit if you need access to more buying power.
What Is the Average Credit Card Limit?
The average credit card limit for Americans was $28,930, according to a recent report by Experian. However, individual credit card limits can vary depending on a variety of factors, and can be as low as $300. For instance, there’s variance in the average credit card limit by age, as well as by creditworthiness.
Whatever your credit limit may be, it’s a critical part of understanding what a credit card is. Knowing your credit limit will help you to be aware of how much you can spend at places that accept credit card payments.
How Credit Card Issuers Determine Your Credit Limit
When you apply for a credit card, your initial credit limit depends on a variety of factors, including your credit scores, your income and debt-to-income ratio (DTI), your history with the card issuer, the card issuer’s policies and goals, and the current economic conditions. Every card issuer has its own process for determining an applicant’s credit limit. Here, some more specifics:
Your Credit Scores
Your credit score is a large factor in determining your credit limit. Just like your score can affect your APR on a credit card, the higher your credit score, the more likely you are to receive a higher credit limit.
In addition, the average credit limit increases with the age of the credit history. Generally, the longer someone has had credit, the more likely they are to use it responsibly. That’s why credit companies may be more likely to offer a higher credit limit to applicants with an older line of credit and a higher credit score. Obviously, the age of your oldest line of credit is limited to your own age, so be sure to be aware of how old you have to be to get a credit card.
Your Income and Debt-To-Income Ratio (DTI)
Due to how credit cards work, card issuers are taking a risk when they extend credit to cardholders. If they think the applicant is a riskier customer, they may offer them a lower credit limit. A high income can indicate that you are able to repay what you borrow. Therefore, a high income can help you get a higher credit limit.
However, credit issuers will also consider your existing debt obligations when deciding your credit limit. Specifically, they will look at your debt-to-income ratio (DTI), which compares the amount of money you owe each month to the amount of money you earn each month.
Your debt-to-income ratio can also affect factors like whether your interest rate is above or below the average credit card interest rate.
Your History With the Card Issuer
Your history with a card issuer can also influence your credit limit. If you have an existing positive relationship with the card issuer, it may help you to get approved for a higher credit limit. However, if you have too many existing cards with an issuer, the card issuer may not want to extend you additional credit, even if you meet other criteria like having an excellent credit score.
The Card Issuer’s Policies and Goals
The credit card issuer has the authority to determine your credit limit, based on how risky they think you are as a customer. Each card issuer has its own policies and goals that it uses to determine what credit limit is afforded to each customer. In other words, your credit limit will also depend on your credit issuer.
Current Economic Conditions
One factor that’s completely out of your control when it comes to your credit limit are the current economic conditions. Since it relates to risk, the current economic environment does play a role in how credit card issuers determine your credit limit. For example, some credit card issuers lowered card limits at the start of the COVID-19 pandemic due to global economic uncertainty.
How to Increase Your Credit Limit
There are several ways to increase your credit limit. Sometimes, your card issuer will offer you a revised credit limit after you update your income information or build your credit. Other times, you may need to be more proactive by directly requesting an increase or transferring your available credit.
Update Your Income Information
One way to increase your credit limit is to keep your income information up to date with your card issuers. Sometimes your card issuer may periodically ask you if your income has changed. If not, you may need to let them know when your income rises, as a higher income can lead to a higher credit limit.
Build Your Credit
One of the best ways to increase your credit limit is to increase your credit score. You can do this by paying your bills on time, keeping your balances low by making more than your credit card minimum payment, and maintaining a low credit utilization rate.
Although this method may take the longest, it may have the most benefit because it could help you in many other financial aspects as well. For instance, it may make it possible for you to secure a good APR for a credit card.
Request an Increase
Most card issuers allow you to request a credit limit increase online. If this option is not available, you also can call your credit issuer to request an increase. However, be aware that a request for an increase sometimes results in a hard credit inquiry, which may hurt your credit score.
Transfer Your Available Credit
If you need a higher credit limit for a specific card (like for a large upcoming purchase), you may be able to transfer available credit from another card from the same card issuer. To check if this is an option for your cards, call your card issuer’s customer service line to request the transfer.
The Takeaway
Your credit limit represents how much you can spend on your card before you’ll need to pay off your balance. While the average credit card limit was recently found to be $28,930, credit limits can vary widely depending on age, creditworthiness, your credit card issuers, current economic conditions, and more. Plus, there are ways you can increase your credit limit.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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How to finally pay off serious credit card debt
You know which three little words no one wants to hear? Credit card debt. It can go from zero to thousands with one quick swipe or build at a slow creep — a nice dinner here, a trip to the mall there, a gas fill-up to get you through until payday — and before you know it, you could be staring at a credit card balance that’s a lot higher than you thought it was.
For Alicia Hintz, the debt creep started in 2016 with a large and unexpected loss of income — the day before she and her husband were to leave on their honeymoon (thanks, universe).
Prior to that, they’d been toying with the idea of selling their Minneapolis home and moving closer to family in Wisconsin. The income reduction sealed the deal. But their house needed some work to be market-ready. The total bill was more than their savings, and their income wasn’t enough to pay in cash, so to the plastic they went.
For them the improvements were worth the investment — in that they sold their house for more than they paid for it, but almost every penny of it went toward fees, commissions, closing costs and other expenses.
Alicia’s financial journey is likely to resonate with the 41.2% of American households that carry an average of about $9,300 in credit card debt, according to data reported by the Federal Reserve for Outstanding Revolving Debt. The statistics are sobering to be sure, but here’s a spoiler alert — thanks to some smart planning and a lot of stick-to-it-iveness, Alicia’s story ends on a high note.
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Fast forward a few months and Alicia and her husband live in Wisconsin but on a much-reduced budget. In fact, it would be six more months before they were able to get their finances back up and running — that’s a lot of time for savings to shrink and debt to grow.
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To try and combat the loss of income, Alicia opened a 0% interest (also known as a deferred interest) credit card with plans to pay it off within the year. “Before I opened that card, I had always paid off my credit card balance each month in full,” she said in a written interview with SoFi.
But, as is life, things didn’t go as planned. “The first month I didn’t pay off my full balance made me panic,” said Hintz. And on top of day-to-day financial challenges, the couple was invited to a destination wedding in the summer of 2017. In order to get the discounted room rate, they had to pay upfront for the flight and resort close to $5,000.
“That extra money added to our credit card debt was a steep mountain to climb,” Hintz said. “After we had to pay that, I knew it would be years to get everything paid off.”
A 0% interest promotional period on a new credit card can last as long as 18 billing cycles, which could be a long enough time to make a large dent in the card’s principal balance.
But once the promo period expires, the interest rate can climb to as much as 27% (or higher). A credit card interest calculator can give you an idea of how much that rate will affect your total balance, and it’s important to consider whether you can achieve your payoff goal before the rate rises.
Deposit Photos
Tackling a large credit card bill isn’t likely to be easy, so an important part of the process could be a hard look at what putting extra money toward credit card bills means for the rest of your budget.
One way to approach a solid debt-payoff plan is to begin with an organized budget. You can start by taking a look at the big picture, including all of your monthly expenses as they currently stand, all of your income and all of your debt.
Your next step might be to focus on your spending. You may see obvious areas where you can cut back, or see if you can get creative to come up with some extra cash flow each month.
“We definitely tried to eat out less and cut back on shopping for clothes,” Hintz said. “But it seemed like every month there were more unexpected expenses that needed to be put on the credit card.”
From there, you can start to focus on a plan that makes credit card payments as equally important as the electric bill. And while you may not be able to pay more than the minimum on all your cards, it’s important to ensure that you pay at least that much if you want to avoid accumulating additional debt.
That’s because, while paying only the minimum can lead to compounded interest rates and larger overall balance over time, skipping payments can also lead to higher penalty interest rates, late payment fees and can even affect your credit.
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The snowball and avalanche debt repayment strategies take slightly different approaches to pay down debt, and both involve maintaining the minimum payment on all but one card.
The debt snowball method focuses on the debt with the lowest balance first, regardless of interest rate, putting extra toward that payment each month until it’s paid off.
Then, that entire monthly payment is added to the next payment — on top of the minimum you were already paying. Rinse and repeat with the next card, and it’s easy to see how this method can quickly get the (snow)ball rolling.
The debt avalanche is based on the same philosophy but targets the highest-interest payment first. Getting out from under the highest debt can save a lot of money in the long run, and just like the snowball method, applying that entire payment to the next-highest-interest debt can lead to quick results.
The third snow-related strategy, the debt snowflake, emphasizes putting every extra scrap of cash toward debt repayment. This method played an active role in Alicia’s debt-elimination strategy. “If you have extra money to throw at your loans, even $20, that can still make a difference in your overall amount owed,” she said.
SeaHorseTwo / istockphoto
As Hintz’s credit card utilization went up, her credit score went down. She decided to research her options and was ultimately approved for a credit card consolidation loan at a considerably lower interest rate than her credit cards, which along with making extra payments, helped save her money in the long run.
Now facing one personal loan payment vs. multiple credit card bills, Hintz anticipated being able to pay down the debt sooner than the three-year term she selected. And once again, life happened.
Over the course of those years, her husband took a new job, and they both changed cars, bought a house and had a baby. They also went to two more destination weddings. This time, though, the extra expenses didn’t derail the plan.
“The loan was paid off within two years,” she said, thanks in part to a conservative budget and using an annual work bonus as a snowflake to make a dent in the balance.
istockphoto/demaerre
One of the biggest things to remember, Hintz said, is that debt elimination doesn’t happen overnight. “Paying off debt is hard work,” she said. “Take it one month at a time. Some months are easier on your wallet, and others are not — looking at you, December!”
She suggested using the time you’re working to pay off debt to develop good budgeting and spending habits so that your post-debt finances are about saving, not spending.
And another tip from Hintz? Celebrate even the little victories. “When I paid off half my loan, I celebrated by taking a nice long bath,” she said.
When they reached zero balance, she and her husband went out for ice cream. “You can celebrate by going to the park with your kids, reading an extra chapter in a book, or finding a new series to watch,” she said. “Always celebrate your loan payoffs, no matter how small!”
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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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