Credit card companies allow customers to borrow money that they pay back later. To protect their investments, these companies place a limit on each card. The customer can only spend the maximum amount shown on their card. It can range from a few hundred dollars to much more. There are even some cards that have no limit. Credit card companies usually only extend those cards to customers with a high income and a history of paying off their debts. Customers can and should learn more about the average credit card limit along with what they can do to increase theirs.
What Determines the Limit?
The average limit on a credit card varies from person to person. Credit card companies base limits on factors such as the person’s payment history. Those who have a history of paying off their debts by the due dates or in less time often have a higher limit. Companies also look at the individual’s account history and the overall amount of debt. Someone who had and used the same card for five years will likely have a higher limit than a new customer. Those with more debt will have a lower limit. Prepaid credit cards are also available. The limit on this card will depend on how much the user puts on it.
One way a customer can improve their credit score is when they pay down their credit cards. Lenders look at the person’s debt to credit ratio, which shows how much debt they have in relation to the credit given to them. Experts recommend that consumers have a 30% ratio of credit to debt. That means someone who has a $1,000 credit limit should keep a balance of no more than $300 on that card. When they spend more, it shows that they are a credit risk. Going over their limit can result in the company charging them a high fee. Companies can even cancel the cards of consumers who often spend more than they have available on their cards.
The minds at SoFi Invest suggest some easy ways for consumers to improve their credit scores and increase their credit limits. They should always update their information, especially when their finances change. Companies are more likely to increase their limit beyond the average amount if they make more than others. SoFi Invest also recommends that consumers call their credit card companies and request an increase. Each company will look at factors like how often the individual made their payments on time and how close they are to their limit. Consumers should also work on building their credit and fixing any errors. This might include paying off debts that a collection agency has and removing judgments from their accounts.
While the average credit card limit varies, it is around $30,000 for those who live in the United States. Consumers will find that their credit score changes based on their limits and that they can use easy remedies to increase their limits.