The Definitive Guide to Securing a Higher Credit Limit

MarketsMotley Fool

Here’s how to get a higher credit limit on the cards you carry, and which cards you should apply for.

Image source: Getty Images.

Continue Reading Below

Having a credit card with a high credit limit offers more than just spending power. Large limits can also bolster your FICO credit score, thus making it easier to finance other major purchases (like cars or a home) at lower interest rates and on better terms in the future.

Though the national average credit limit stands at about $8,100, according to Experian, cardholders can qualify for credit limits several times higher. In the article below, we’ll show you what you need to do to put a high limit card in your wallet.

What is a credit limit?

A credit limit is defined as the maximum balance a lender will allow you to carry on a credit card or other line of credit. If your credit card has a credit limit of $5,000 then you could carry a balance up to $5,000 on the card at any given time.

Most credit cards offer credit limits ranging from as low as $200 all the way up to $50,000 for high-end travel and business credit cards. Some cards go so far to advertise having “no pre-set spending limits,” implying there is no limit, but for practical purposes, there is no such thing as a no-limit credit card. (No one can borrow (or lend) unlimited amounts of money.)

There isn’t any official number at which a credit limit can be considered a “high” limit, but I draw the dividing line at $10,000. That’s because many of the top rewards cards won’t accept an applicant unless they can be approved for a limit of $10,000 or more. Anyone who can qualify for a $10,000 limit can qualify for just about any credit card on the market.

Why you can trust me

At 28 years old, I only have about a decade of credit history, have never earned an exceptionally high income, and don’t have a trust fund shuffling money into my bank account every month. I started with just one credit card with a $750 limit, but with a lot of trial and error, I quickly got approved for cards with limits above $25,000, and now have more than $100,000 in credit limits across all my cards from virtually every major issuer. I’m sharing what I’ve learned from my own personal experience and laying out a roadmap for how to get substantial increases in your credit limits with minimal effort. But for now, let’s start with the basics.

How a higher credit limit can help you

Having a high credit limit can offer some real advantages that you shouldn’t overlook, from making it more convenient to manage your accounts, to giving you free financing on major purchases and expenses. Here are the three biggest benefits of having accounts with high credit limits:

  1. More spending power -- The obvious benefit of a high credit limit is that you won’t have to worry about spending too much on a card in any given month. If you normally spend $1,000 per month, but have a card that has a $500 limit, you’ll have to make multiple payments throughout the month so as to avoid having your card declined or paying a fee for going over your credit limit. Personally, I like knowing that anything I could ever need to purchase will fit comfortably within the limit of my card.
  2. Credit score help -- As much as 30% of your credit score is based on your credit utilization, or your outstanding balances as a percentage of your credit limits. Experts suggest keeping your balances to less than 30% of your credit limits to maximize this portion of your credit score. Thus, a good rule of thumb is that you want your credit limit to be equal to about four times your monthly spending to give you some wiggle room. So, if you spend $2,500 per month, you’d want a credit limit of $10,000 or more, so as to be sure your monthly spending won’t put you over the ideal utilization ratio.
  3. Free financing -- Many credit cards now offer 0% intro APRs on purchases and balance transfers, allowing their cardholders to finance a balance at no cost for periods as long as 18 to 21 months. Many people use 0% credit card offers to finance a major purchase -- medical bills, car repairs, home improvements, etc. -- and being able to borrow more means getting more value out of this common perk.

How issuers determine credit limits

Banks have to carefully balance the desire to lend as much as possible (to maximize interest income) with the risk of giving someone so much credit that they can’t possibly pay it back. Thus, banks tend to look at three critical pieces of information to determine how much credit they can approve you for.

Here’s what has the biggest impact on your credit limits:

  1. Your income -- It doesn’t matter how high your credit score is if you don’t have any income to be able to pay off your credit card bill. Lenders use your income as a factor in deciding how much to extend to you. We’ve read multiple data points that suggest many lenders will try to keep limits to about 25% to 100% of the credit applicant’s annual income, across one or many different cards.
  2. Credit scores -- If you consistently pay your bills on time, you’ll have a great FICO credit score, and banks will be more willing to give you a larger credit limit. People who have recent late payments, judgments, or other problematic accounts on their credit reports will almost certainly receive a lower credit limit than people who have perfect payment history.
  3. Your other obligations -- Using the data on your credit report, banks can get a good feel for your monthly payments on other accounts you have (student loans, credit cards, mortgages, and car loans). Banks divide your minimum payments by your income to get a feel for how much more credit you can afford to service, if any. If two people both earn $60,000 per year, but one has $1,000 per month in combined car payments and student loans, and another has no other existing debts, the applicant with no other debts will likely get a larger credit limit, all else equal.

How to get a higher credit limit

While getting a higher limit isn’t as easy as snapping your fingers, there are some things you can do to increase your existing limits and improve your odds of getting approved for a high limit credit card. It can take some work, but as little as 30 minutes can make a big difference in scoring more spending power.

Here’s how to increase your credit limits, step by step:

  1. Don’t bother with store credit cards -- It’s hard, if not impossible, to get a high credit limit from a store credit card. Many store cards only offer limits of $2,000 or less, even if you have a six-figure income and an 800+ credit score. If you want a high credit limit, general purpose credit cards (GPCCs) that can be used anywhere are the way to go. Trying to get a high limit from a store card is the equivalent of trying to get a tan in an Alaskan winter -- it just won’t happen.
  2. Start with your existing cards -- The cards you already have are a good and quick way to get a higher credit limit. Most non-store card issuers allow you to request a credit limit increase on your credit card every six to 12 months. Because the issuer knows your spending patterns and payment history, they’ll be more likely to give you more credit than a new issuer. Plus, one of the catch-22s of credit limits is that having a high limit on one card can make it easier to get a higher limit from another card later. It’s strange, but true. Data points and my own personal experience suggest issuers often play “leap frog” by issuing higher limits to people who already have a high limit from another issuer.
  3. Report your income accurately -- Make sure you report your annual income as requested when filling out a credit application. Most card issuers ask for your annual gross income, or how much you earn before taxes, retirement contributions, health insurance payments, and other deductions from your income. In addition, card companies often ask for household income, so a couple with two incomes can report the combined total incomes of both people as income on the application. The more income you have, the higher credit limit you’ll receive, all else equal. Online applications generally explain what types of income (wages, tips, alimony, pensions, and more) that can be included when applying.
  4. Apply for higher-tier cards -- After 10 years, the first card I ever opened is still stuck with a limit less than $1,500. To get a higher limit, I had to open other accounts from other issuers. As a general rule of thumb, cash back and travel cards are designed for higher spending households who have higher incomes and credit scores. No-annual-fee cash-back cards generally check the box for high-limit credit cards for people who have average credit or better. Such cards are a good place to start if you have a credit score of around 700.
  5. Look at the payment network sticker carefully -- One thing I’ve learned is that a good indicator of whether or not a card offers a high limit is its payment network branding. Visa cards that carry the Visa Signature logo offer limits of $5,000 or more, while Visa Infinite cards offer credit limits of $10,000 and higher. There are mixed data points for Mastercard credit cards, but Mastercard World, and Mastercard World Elite cards typically offer higher limits than ordinary Mastercard-branded cards. There isn’t an obvious distinction for American Express and Discover cards, though. Is it possible an ordinary Visa card will offer a higher limit than a Visa Infinite card? Sure. But, as a practical heuristic for finding cards with high limits, payment network branding works really well.
  6. Maximize your credit score -- Having a higher credit score can help you get a higher credit limit. The basic rules apply: Always pay your bills on time, keep your balances to less than 30% of your credit limit to avoid a ding to your credit score, and don’t close your oldest accounts.
  7. Minimize the number of accounts with balances -- Having several accounts with balances can indicate financial distress, and it can be a reason a card issuer gives you a lower limit when reviewing your application. It’s preferable to have a $2,000 balance on one card rather than a $100 balance on 10 different cards. Besides, since most cards require a minimum payment of $15-$25 per month, regardless of the balance, having 10 balances of $200 will mean having $150 to $250 in monthly minimum payments on your credit report. The minimum monthly payment on a single balance of $1,000 might be as little as $20 per month. Having one larger balance vs. many small balances improves your debt-to-income ratio for this reason.
  8. Combine your limits -- Most issuers will allow you to move credit limits from one card to another. So, if you have two Capital One cards, each with a $6,000 limit, you may be able to turn one card into a card with a $10,000 limit and reduce the other to a $2,000 limit. While this won’t help you increase your total credit limits, it can help you increase the limit on one card that you use most often, improving your utilization ratio for that specific card.

How to get a high limit with bad credit

While having a high credit score is the easiest way to get a higher credit limit, there is a backdoor for getting high credit limits even if you have bad credit. A secured credit card can allow you to essentially pick your own credit limit when you apply.

Secured credit cards work just like ordinary credit cards, with one major difference: You have to put up collateral to open the account. For example, Discover it® Secured requires a minimum deposit of $200 to open an account with a $200 credit limit. However, cardholders can make a deposit of up to $2,500 and thus receive a credit limit of $2,500. The credit limit increases with the size of the deposit, which essentially allows you to pick your own credit limit up to $2,500.

If you have some spare cash you can put towards the deposit, Discover it® Secured is a good card for people who have bad credit to get a credit limit over and beyond the $200 minimum. Best of all, after several months of on-time payment history, your deposit can be returned to you, and your credit limit may increase regularly afterward.

The advantage of a secured card is that it reports your account information (payment history, balance, and credit limit) to all three major credit bureaus, just like an ordinary unsecured card. In addition, very few applicants get declined for secured cards, since the deposit protects the bank from any losses. (If you don’t pay your bill, the bank will use your deposit to cover the balance.)

Of course, a secured card has to be used wisely. You need to make monthly payments on a secured card just as you would an unsecured card to avoid late payment fees and negative marks on your credit score. And you should avoid carrying a balance, since you will be charged interest on any balances you carry from one month to the next. The deposit may make a secured card feel like a debit card, but secured cards are credit cards.

What you should know about having high credit limits

While I recognize that getting a higher credit limit can be a very good thing, they should come with a few asterisks and warning labels. Here are two things I think are important for everyone to know before going on a spree to seek out as much credit as possible.

  1. Your credit limit isn’t your spending limit -- Don’t confuse being able to charge a $25,000 purchase as being able to afford $25,000 of credit card debt. If you’re the type to spend as much as you have available to you, a high credit limit can lead to financial ruin. Paying off a $25,000 balance by making the minimum payments will cost you more than $36,923 in interest. Don’t use high limits to live above your means.
  2. The cool factor is nonexistent -- If your sole motivation to have a higher credit limit is because you think it’s impressive, don’t bother. Many cards that offer a $1,000 credit limit can also offer a $30,000 credit limit. No one will ever know what your credit limit is, and really, no one cares. The real advantage of a high limit is that it can improve your credit score and thus the terms you receive on other types of financing later. The benefits of having a high credit limit are about as “uncool” as it gets. Beneficial? Yes. Cool? Not really.