When a credit card company first issues you a credit card they give you a credit limit. This credit limit is the maximum amount that you can charge to your account at any given period of time. If you are young you might not have a very extensive credit history which means you might be given a lower credit limit.
How is a Credit Limit Determined?
Credit card companies will usually take several different factors into consideration when determining your limit. The biggest factor is your credit score. Your credit score is a number that tells creditors how reliable of a borrower you have been in the past and helps to predict your ability to repay future debts. Other factors that credit card companies look at are your income and other debts that you currently have such as student loans, home loans and more. Lastly, they will also look at the amount of credit that you have available to you from other credit card companies and retail stores (Target, Macy’s, etc)
Just because you have a certain credit limit doesn’t mean this can’t change in the future. If you prove yourself to be a responsible borrower and you are consistently on time with your payments you might find that your credit card company might automatically raise your limit. You can also ask them for a raise and they might be more than happy to oblige.
On the contrary if you have been late paying your bills, are starting to charge more than normal they might decide to reduce your available limit. If you happen to go over over your limit you might even get charged a fee. These fees have become heavily regulated over the past few years since the Credit Card Accountability Responsibility and Discloser (CARD) Act.
If you have a lower credit rating than you might want to start by going over tips to improve your credit score. This will be the first and most important step to being able to get a higher credit limit in the future.
And if you have quite good credit, they are eager to raise your credit limit. I’m not sure if it’s the same in the US, but here in Canada they need your approval before raising your credit limit. It seems that every time I talk to my credit card issuer they are trying to raise my limit. Since I would never charge that much to my credit card, I don’t see much point in it.
I used to call to increase my credit limit, and the banks would happily do it because they knew I was paying the min payment and also purchasing a lot of items on credit. I still use my credit cards everyday but for necessities, and I pay it off before interest is accrued… so I haven’t tried increasing my credit limit again! I don’t think I want to since I don’t have the need to charge more than what I already have (I don’t even use half of my credit limit each month!)
When I was in college and first started applying for a credit cards my limits were extremely small. I’m glad that was the case or else I may have gotten myself into more trouble than I did!
I used to call and increase my limit all the time to get a better ratio. I use a very small percentage of my available credit though, so once it got pretty high (like over 10 times my peak usage) they started telling me “we believe we have extended you enough credit.” Maybe they think I’m planning something big or devious… Home Depot reduced my available credit from $25,000 to $5,000 for some reason… not sure. I paid off the initial purchase in full and haven’t charged anything there in years. I guess I’m a bit surprised they haven’t closed the account.