How is Your Credit Card Limit Determined & Can It Change?

Credit cards are one of the most popular forms of payment today. Chances are that you have at least one card in your wallet right now. While you’re probably familiar with big picture of how credit cards work, the details often baffle people.

Anytime you’re dealing with money and loans, it’s important to be fully informed! This guide will answer those questions so you can make financial decisions that work best for you.

If you have questions, we’re ready to help. HFCU's VISA® cards have no annual fees, no balance transfer fees, and no cash advance fees. Stop by or call any of our branch locations to learn more!

What is a Credit Card Limit?
The limit assigned to your credit card is the maximum amount you’re able to charge to your card. For example, if your credit card limit is $2,500, you cannot make purchases that exceed this amount.
If you have several credit cards in your wallet, it’s likely that each card has a different limit. So, how do credit card issuers determine how much credit to extend to you?

How is Your Credit Card Limit Determined?
Each creditor has their own set of rules and policies for setting credit limits. For example, one lender might place a greater weight on your annual income, while another focuses more on your credit score. There will be slight discrepancies between issuers; however, they all focus on key figures.

Your Credit Score: Your credit report and score provide lenders with a glimpse into how well you manage credit and loans. Your score is determined through five main components:

  • Payment History: How often you make payments on time.
  • Amount Owed: How much debt you currently have outstanding.
  • Length of History: How long you have been using credit cards and loans.
  • Credit Mix: How much of your debt is secured versus unsecured.
  • New Credit: How often you are applying for new credit cards or loans.
  • Your Gross Annual Income: Your income is not included in your credit report so the lender will request this information from you.

The Type of Credit Card: There are two main types of credit cards: secured and unsecured. The most popular form is an unsecured credit card where no collateral is necessary. The limits on these cards are determined through the above methods.

A secured credit card is different because it requires collateral. This card type is often used by people just learning to manage credit or those looking to rebuild damaged credit scores. For example, a borrower will give the lender $500 in exchange for a $500 secured credit card. The card functions just like a normal credit card. However, if the individual cannot make the monthly payments, the lender will use the $500 deposit to cover the charges.

Can I Increase My Credit Limit?
For some issuers, you simply need to give them a call. Once you request a limit increase, the creditor will determine if you qualify. This decision is entirely up to the lender; however, areas that can help increase your odds of approval include:

  • Credit Score Increase: If your score has increased since you initially received your credit card, that will demonstrate to the lender you can responsibly manage your debts.
  • Income Change: A jump in your annual income will often encourage creditors to extend you more credit. Married couples that combine their finances after marriage frequently see a boost in their credit limit since they have two incomes now.
  • Card-Type Transition: If you have successfully shown you can manage a secured credit card and are ready for an unsecured card, issuers will generally extend you a higher limit than the lower credit-building thresholds of unsecured cards.

Can My Credit Limit Decrease?
Yes. The most common reasons for this situation are:

  • Card Inactivity: If you rarely use your credit card, your lender might reduce your credit limit or close the account entirely.
  • Irresponsible Use: If you’re regularly maxing out your credit card or failing to make timely payments, your creditor could reduce your limit or close your account.

Credit cards are one of the most convenient forms of payment and the more you know about how they work, the better position you’ll be in to use them responsibly and to your advantage.

Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.