A credit card’s credit limit represents the card’s spending power, and it is one way the bank evaluates your overall credit. If the limit is too low, large purchases can be awkward; if it’s too high, there can be downsides too. Today let’s go over the rules banks use around credit limits.

mock-credit-card-1-1204846

What is a credit limit?

A credit card limit (Credit Limit) is generally the maximum amount the bank sets when it approves a card. In general, the total debt on a credit card cannot exceed the credit limit.

A card’s limit is made up of the total limit (Credit Limit) and the available credit (Available Credit). The total limit is relatively fixed and does not change based on your spending. Available credit, however, depends on your current card activity. For example, if your total limit is $2,000 and you already charged $100 at Amazon, your available credit is $2,000 - $100 = $1,900, so you can’t charge more than $1,900 at other merchants.
Some banks do support spending above the total limit, but usually you need to contact the bank first before the transaction goes through.

To keep spending, you can choose to pay a part of the balance first. For example, if your available credit is only $1,900 and you pay $50 back to the bank, your available credit increases to $1,950, and then you can spend up to $1,950.

What determines your initial credit limit?

After your application is submitted and approved, you can usually find out your card limit by phone. The initial credit limit is based on your current credit score and credit report. Generally, a higher credit score means fewer negative items on your report, and higher income usually means a higher credit limit. For example, among the two people below, A would have a higher credit limit:

  • A: Credit score 780, only 2 hard pulls and 2 new accounts on the credit report in the last 3 months, annual income 100,000
  • B: Credit score 680, 5 hard pulls and 2 new accounts on the credit report in the last 3 months, annual income 50,000

Of course, your credit limit is also related to your relationship with that bank. If you already have another credit card or a checking account with the bank, the credit limit offered may be higher. In practice, once you submit an application, the bank automatically runs your credit report through an underwriting system, and the system automatically gives an initial limit. If you call for reconsideration, a credit analyst will manually review your credit report and then finalize a limit after combining their assessment with the system output.

Aside from credit history, the limit a bank gives can also depend on the credit you already have with that bank. For example, if you already have $20,000 in total limit at Chase, they may only give you $5,000 on a new card.

Can you charge over your limit?

One of the most frustrating things when you get your first credit card is a limit that’s too low. For example, the Discover it beginner card may have an initial limit of only $500. A $500 limit might not even cover a round-trip ticket between China and the U.S. If you want to earn 1% cashback, a natural question is whether you can charge above the limit. Unfortunately, a credit card is still a card used to spend borrowed money, so you normally cannot charge above the limit.
That said, banks do offer some convenience features. If you exceed the limit by only a little, the transaction often still gets approved. In addition, AMEX offers an over-limit purchase feature, but you need to call ahead, tell the merchant and an approximate amount, and customer service will temporarily raise your limit so the card can be used.
No matter how much you spend, you still have to pay it back in full.

How do credit limits differ by bank?

Setting aside credit history and score, the same person can get different limits from different banks. Based on my experience, banks that issue fewer credit cards generally give lower limits. For example, some Credit Unions typically do not give very high initial limits. From my own experience:

  • American Express: Usually the most generous with initial limits, often giving over $2,000 on the first card
  • Citi: Limits are also good, with people with about 1 year of credit history often getting over $1,000
  • Chase: Very tight on the first card, which may only be $500-$1,000, but after you’ve held cards with them for a while, limits become very generous
  • Discover: For people with no credit history, they generally give $500-$1,000; later applications may also come with modest initial limits, but it is still a good starter option
  • US Bank: Limits are decent, usually $2,000-$5,000 after one year of credit history; not recommended as a starter card
  • Bank of America: Limits are quite tight, usually around $1,000, but this is often suitable for people with a short credit history starting out

How do limits differ by card type?

Many people may not know that different credit cards have different initial limits. In other words, if your credit profile isn’t strong enough and your income is too low to meet a card’s minimum limit threshold, the application will not be approved. Minimum initial limits can be grouped into three buckets:

  • Visa Infinity: Minimum limits are above $8,000-$10,000, such as Chase Sapphire Reserve, US Bank Altitude, etc. These are mostly premium cards (annual fee $400+).
  • Visa Signature/ MasterCard World Elite: Minimum limit is $5,000, usually seen on mid-tier cards (annual fee around $100) and some airline/hotel co-branded cards like Chase Sapphire Preferred, Marriott, Hyatt, Citi Premier
  • Visa Platinum: Minimum limits are $1,000-$2,000, common with no-annual-fee cards and some airline/hotel co-branded cards such as Chase Freedom, BofA Cash Rewards, etc.

Note that these are minimum limits. Even Chase Freedom can have a limit up to $10,000. Also, these are minimum approval amounts; even premium cards like the Chase Sapphire Reserve can be reduced to $1,000. For AMEX cards, there does not seem to be a minimum approval limit—most are above $1,000—and there is no tiered split like these Visa categories.

In general, cards with a $5,000 minimum limit are usually the best targets if you have about a year of credit history and some income. Cards with minimum limits in the $8,000-$10,000 range usually require higher income to be approved more easily. As a starter, choose no-annual-fee cards with lower minimum approval limits so you don’t waste hard pulls.

What are the benefits of a higher credit limit?

In general, a higher credit limit has clear benefits:

  • Better spending experience: You don’t have to worry about hitting your limit and having to pay before spending again. Also, spending $900 on a $1,000 limit card is more likely to trigger a Fraud Alert than spending $900 on a $10,000 limit card, which can be frustrating.
  • Improves your credit score: Credit scores are tied to utilization; with a higher limit, your utilization ratio is lower for the same balance, so your score can be higher
  • Help with approvals at the same bank: If you have a card at a bank with a relatively high limit, when applying for another card there, you can request moving part of the original card’s limit to the new card, so your new card can
  • Help with approvals at other banks: When applying for a new card, some banks review the limits you have with other banks. If you already have a card with more than $5,000 in limit, that can make the other bank more confident in approving you. Chase is a classic example.

But if you already have a few high-limit cards as a cushion, the exact limits on other cards are less important—you just need enough to spend.

How to increase your credit card limit?

Credit limits are not set in stone. They can change based on your credit profile and how you use your cards. In general, limits usually rise as your card tenure increases and you use the card normally. For example, my original Chase Freedom started with a $800 limit, then increased to $1,500 the first time, later to $4,300, and now it is a little over $6,000. A higher limit generally means the bank trusts you more and is willing to grant you more credit.

In addition to passive increases, card limits can also be increased proactively. There are two types. One is a soft pull, where the bank reviews your card usage based on your request and then directly increases your limit. The other is a hard pull, where the bank pulls your full credit report from the credit bureau and then decides whether to increase your credit line based on your profile. In my opinion, if you do not have a specific need, using a hard pull to raise your credit line is not worth it.

More and more banks now offer soft-pull ways to increase limits through online banking. This option usually appears after you’ve used the card for a while. For instance, AMEX allows you to request up to a triple increase after 3 months of use; Discover and Citi also offer similar options. A key point: if, during a credit-line increase request, you are shown an option that requires pulling your credit report, do not agree—this is a sign of a hard pull. A soft pull increase does not include this consent step.

Is a Higher Credit Limit Always Better?

After all of this, you may think a higher credit limit is always better. There are a few exceptions, though. Examples:

  • AMEX Financial Review: If your total AMEX credit limit exceeds $25,000 (an empirical threshold), AMEX FR is quite likely to be triggered automatically. As long as your income supports it, FR itself is usually fine. But if you have a lot of MS activity, or you are opening cards primarily for signup-bonus churn, FR can become a trigger for a shutdown.
  • Chase Review: Similar to AMEX FR, Chase also reviews users with relatively high total credit lines. In addition, Chase has a cap on a person’s total credit limit, usually at some percentage of income. If your total limit is already at the cap, a new Chase card approval may be declined.

My view is that once your limit is high enough, its impact on your credit score becomes negligible. After earning your signup bonuses, you usually do not need to keep very high limits on cards that sit in your drawer. You can proactively lower them. In most cases, proactively lowering a limit does not trigger a hard pull, but be aware that if you lower it and then try to raise it back immediately, a hard pull is quite possible.

What Is Credit-Line Transfer?

Many banks now offer limit transfer, which lets you move part of Card A’s limit to Card B, or when closing Card A, move the remaining limit entirely to Card B. This can be very useful. For example, Card B is your main spender and needs more room, while its initial approved limit is low. Then you can move some of Card A’s underused credit to Card B. In general, limit transfers do not require a hard pull; customer service can usually do it directly.

Bank-specific rules:

  • AMEX: Available directly online. The card transferring out must be at least 13 months old, and the card receiving the transfer must be at least 60 days old. You can do it after logging in through this link. Calling is also supported. No hard pull.
  • Chase: You can submit a secure message online to transfer limits between any Chase cards. All Chase cards under your name can be transferred between each other. No hard pull.
  • Citi: You can transfer an old card’s limit to a newly opened card without a hard pull only at account opening. In other situations, a hard pull may occur.
  • Discover: You can transfer limits between two Discover cards by phone; new card openings can also be allocated freely.

Any Credit-Line Black-Tech?

Since these are “black-tech” style tactics, I won’t go deep here. If you’re interested, you’ll probably find some clues in forums and discussion boards.

  • Total Credit Limit vs. Annual Fee: Some legal terms state that a card’s annual fee cannot exceed a certain percentage of that card’s total limit. If it exceeds, the annual fee is waived.
  • Lowering limits proactively to satisfy AOR: For Chase cards, if you plan to apply for several cards at once, lowering other card limits can increase the odds of instant approval. It can also improve the chance of having multiple cards approved in one day.
  • Move credit line to increase total 0APR amount: If you apply for a new Card A with a 0APR purchase offer, you may be able to transfer some limit from an older Card B, which increases the total amount subject to 0APR. (Unverified; I have not personally tested this.)