What Is the Average Credit Card Limit?
Unpack how credit card limits are determined, what typical limits are across various profiles, and their role in your credit health.
Credit limits are a fundamental component of credit cards and lines of credit, representing the maximum amount of money a financial institution allows an individual to borrow. This limit indicates the credit grantor’s assessment of a borrower’s creditworthiness. While the concept remains consistent, specific limits extended to consumers vary considerably.
These varying limits are influenced by a multitude of factors, reflecting the unique financial standing and history of each applicant. Understanding the elements that determine these limits, along with the average figures across different credit profiles and card types, provides valuable insight into credit.
Understanding Credit Limits
A credit limit is the maximum amount of revolving credit a lender extends to a borrower on a credit card or line of credit. From the lender’s perspective, this limit serves as a risk management tool, capping their potential exposure. It represents the highest balance a cardholder can carry before new transactions are declined due to insufficient available credit.
For the borrower, the credit limit defines the total purchasing power or accessible funds available through that specific credit account. It dictates the maximum amount they can charge or access. Once the balance reaches this threshold, the cardholder must make payments to reduce the outstanding amount and free up additional credit for future use.
Factors Influencing Individual Credit Limits
Lenders evaluate several factors when determining an individual’s credit limit. A primary consideration is the applicant’s credit score, which provides a snapshot of their credit risk. Higher credit scores signal a lower risk to lenders, often resulting in higher credit limits.
An applicant’s reported income also plays a significant role, as it demonstrates their capacity to manage and repay borrowed funds. Lenders consider the debt-to-income ratio, which compares existing debt obligations to gross monthly income, to gauge financial strain. A lower ratio indicates a stronger ability to take on additional credit.
Payment history is another element, with a consistent record of on-time payments indicating responsible credit management. The length of an individual’s credit history also contributes to the decision. An existing positive relationship with the lending institution can also influence the limit offered.
Average Credit Limits by Credit Profile and Card Type
The average credit limit in the United States was approximately $29,855 across all credit cards as of the third quarter of 2023. This average is heavily influenced by credit profile and card type.
Credit scores are a significant determinant of available credit. For consumers with excellent credit scores (800 and above), average credit limits can be considerably higher, with averages around $69,346 in 2022. Individuals with good credit (670-739) also expect substantial limits, though often lower than those with excellent credit. Those with fair or average credit (580-669) generally receive lower limits, with some cards offering initial limits around $1,000 to $4,400. For applicants with poor credit, initial limits are often quite low, sometimes starting at $500 or less.
Credit card types also impact average limits. Student credit cards, designed for individuals with limited credit history, feature limits ranging from $500 to $2,000, with some starting as low as $200. Secured credit cards, which require a cash deposit that serves as the credit limit, commonly start with limits of $200, though some can go up to $5,000 depending on the deposit. Standard cashback or rewards cards offer limits from $1,500 to $2,500, while premium or travel rewards cards, which cater to consumers with strong credit and higher incomes, often come with minimum limits of $5,000 or $10,000, and can extend significantly higher.
Credit Limits and Credit Utilization
The credit limit directly impacts a key component of credit scoring: credit utilization. Credit utilization is the ratio of the amount of credit used to the total available credit. For instance, if a cardholder has a $1,000 balance on a card with a $10,000 limit, their utilization for that card is 10%.
Credit scoring models, such as FICO and VantageScore, consider this ratio an important factor in assessing credit risk. A lower credit utilization ratio indicates responsible credit management and contributes positively to an individual’s credit score. Conversely, a high utilization ratio may suggest a higher risk of overextension. A higher credit limit, provided it is not fully utilized, can help maintain a lower utilization ratio by increasing the denominator in the calculation.