When it comes to credit cards, “good” can mean a lot of things, but today, we’re talking credit limits. You know, the magical number that determines how much you can spend before your card gives you the cold shoulder. But what exactly is a good credit limit? Is it enough to cover a trip to Bora Bora or just a night out?
A good credit limit varies based on individual financial situations, but to maintain a healthy credit score, it should be enough to cover expenses without exceeding 30% of your available credit. In other words, you want your credit limit to be almost four times the most you plan to spend on the card (before paying it off).
MoneyLion can help you explore a wide variety of credit card options tailored to different needs and preferences.
Understanding good credit limits
A credit limit is the maximum amount of money your lender allows you to borrow on your credit card. A good credit limit varies depending on factors like the type of card you have and your age group. For example, types of credit cards have different typical limits.
Building a good credit limit starts with choosing the right type of card, especially if you’re new to credit. For instance, if you’re just starting and have no credit history, consider getting a credit card for no credit. These cards can help you establish a credit history, which can eventually lead to higher credit limits as you prove your creditworthiness.
By card category
The type of credit card you own plays a significant role in determining your credit limit. Let’s break it down by category.
| Card category | Good credit limit |
|---|---|
| Student credit cards | Typically $500 – $1,000 |
| Cashback rewards credit card | Generally $1,500 – $2,500 |
| Premium rewards credit cards | Often $10,000 and above |
| Secured credit cards | Equal to your deposit, usually $200 – $2,000 |
By age group
These figures represent trends and correlations tied to the types of credit cards typically associated with each age group, not a direct causal relationship between age and credit limits. Here’s how credit limits generally break down by age:
| Age group | Good credit limit |
| Silent Generation (75+) | $5,000 and above, with the average being around $30,000 |
| Baby Boomers (56-74) | Between $5,000 – $10,000, most people have around $40,000 |
| Gen X (40-55) | $4,000 – $9,000 is considered good, but the average credit limit for this group is around $35,000 |
| Millennials (24-39) | You may be able to get by on $3,000 – $7,000 while the limit generally tops out at $25,000 |
| Gen Z (18-24) | Just starting out, you may get a good credit limit between $500 – $2,000 and typically no more than $12,000 |
What should your credit limit be?
How do you figure out what your credit limit should be? It boils down to your financial habits and income. A good rule of thumb is to aim for a credit limit that’s about 20-30% of your annual income. For example, if you make $50,000 a year, a good credit limit might be around $10,000 to $15,000. This level not only gives you spending power but also keeps your credit utilization in check, which can help boost your credit score.
Why does your credit limit matter?
A higher credit limit can give you more financial flexibility and positively impact your credit score by lowering your credit utilization ratio. A good limit can also make it easier to manage larger expenses and emergencies without maxing out your card. A high credit limit can improve your credit score as long as you manage it responsibly. More available credit generally means a lower credit utilization ratio, which is a key factor in calculating your credit score.
How to increase your credit limit
Want to bump up that credit limit? Here are some tried-and-true methods that might help:
- Pay your bills on time consistently: Demonstrating a history of timely payments shows lenders that you’re reliable and financially responsible. This consistent behavior builds trust with your credit card issuer, which will likely approve a higher limit.
- Use your credit card regularly: Regular use of your credit card indicates that you’re an active customer, which can make issuers more inclined to increase your limit. It’s crucial to strike a balance and not overspend, as this could raise red flags.
- Keep your credit utilization low: Maintaining a low credit utilization rate — ideally below 30% of your available credit — signals to lenders that you manage your credit well. This metric is a significant factor in determining your credit score and can influence your eligibility for a limit increase.
- Update your income information with your credit card issuer: An increase in your income can be a solid reason for requesting a higher credit limit. By updating your issuer with your latest income details, you provide justification for additional credit.
- Wait several months between credit limit increase requests: A waiting period of several months shows that you’re not overly reliant on credit and can manage your finances responsibly.
- Consider requesting a credit limit increase: Sometimes, the simplest way to get a higher limit is to ask for it directly. Contact your issuer and be prepared to explain why you believe a higher limit is warranted, whether due to increased expenses or improved financial standing.
- Build a long-term relationship with your credit card issuer: Loyalty to a single issuer can work in your favor. A long-term relationship, especially if marked by responsible credit usage, can lead to trust and, consequently, a higher credit limit.
- Maintain a good credit score: Your credit score reflects your creditworthiness. The higher your score, the more likely you are to be approved for a credit limit increase. Good credit practices, like paying off balances and avoiding late payments, can help you achieve and maintain a high score.
MoneyLion offers a free and convenient way to find offers from our trusted partners to help you improve your credit — such as credit monitoring, credit report disputes, and getting credit by paying bills. A good credit score can lead to lower interest rates and increased borrowing power on loans and credit cards.
How to handle your credit limits and expenses
Managing your credit limits and expenses like a pro may save you from financial headaches. Here’s how:
- Create and stick to a budget: A budget may not be glamorous, but it’s a fundamental tool for financial health. It helps you allocate your income towards expenses, savings, and investments, ensuring you don’t overspend. By setting clear limits on spending categories, you can prevent impulsive purchases and stay within your means.
- Know your credit limits for each card: Understanding the credit limits on your cards is crucial to managing your spending. This knowledge helps you avoid the pitfalls of maxing out your cards, which can lead to higher interest rates and a lower credit score. Knowing your limits also enables you to plan significant expenses more effectively.
- Track all expenses carefully: Monitoring your spending is essential for maintaining financial control. By tracking every transaction, you can identify patterns, spot unnecessary expenditures and make informed decisions about where to cut back. This practice also helps in reconciling your budget and adjusting it as needed.
- Avoid maxing out credit cards: Keeping your balance well below your credit limit provides a safety net for unexpected expenses and helps maintain a healthy credit utilization rate. High utilization can negatively impact your credit score, making it harder to qualify for loans or favorable interest rates in the future.
- Set up account alerts for large purchases or when nearing limits: Use account alerts to stay informed about your spending. These notifications can help you avoid accidentally exceeding your credit limit, prevent overdraft fees, and alert you to unusual activity. They are an easy way to keep tabs on your account without constantly checking in.
- Review statements regularly for errors or fraud: Regularly reviewing your credit card statements is a critical step in financial management. This practice allows you to verify all charges, catch errors, and identify fraudulent transactions early. By doing so, you can dispute inaccuracies promptly and avoid paying for charges you didn’t authorize.
Finding the sweet spot
In the end, a good credit limit is all about balance. It should give you enough flexibility for larger purchases without tempting you to overspend. Remember, a high credit limit isn’t a green light to splurge; it’s a tool to manage your finances more effectively. Use it wisely and keep your spending in check.
FAQ
How much credit should I use?
Aim to use less than 30% of your available credit to maintain a healthy credit score.
Why should you stay away from borrowing up to your credit limit?
Maxing out your card can negatively impact your credit score and limit your financial flexibility.
How much of a credit limit increase should I ask for?
Request a modest increase, typically around 10-25% of your current limit, to increase your chances of approval.
If my credit limit is $1,000 how much should I spend?
Ideally, try to keep your spending below $300 to maintain a low credit utilization ratio.
What is considered a high credit card limit?
A high credit card limit generally starts at $10,000 and can go up significantly based on creditworthiness.
Should I increase my credit limit?
Increasing your credit limit can be beneficial for your credit score and financial flexibility, but it should be done responsibly.
