Budgeting Credit Loans

What Is the Average Credit Limit?

If you are looking for funding, you are probably wondering which option will give you the highest amount. But what is the average credit limit on a loan or credit card? Here, you will learn about the average credit limits are for different types of funding and how you can get a credit limit increase.

What Is a Credit Limit?

A credit limit, also called a spending limit, represents the maximum amount of available credit an account holder has. A credit limit can apply to either credit cards or traditional personal loans. Credit limits are not uniform and can vary greatly from borrower to borrower. 

Types of Credit Limits

Credit limits typically come with two kinds of funding; credit cards and loans. 

Credit Limit on Credit Card Accounts 

A credit card spending limit is revolving, meaning borrowers have renewed access to their total credit limit at the end of each month. Below is a breakdown of the average credit card balance of each generation: 

  • Generation Z: average credit card balance of $2,282 as of 2021. 
  • Millennials: average credit card balance of $4,576 as of 2021. 
  • Generation X: average credit card balance of $7,070 as of 2021.
  • Baby Boomers: average credit card balance of $5,804 as of 2021.
  • Silent Generation: average credit card balance of $3,177 as of 2021. 

Credit Limit on Loans

Loans have a one-time credit limit which borrowers receive in total at the beginning of their loan contract. Borrowers using traditional loans who want additional funding must apply for a new loan once they have spent their distributed credit limit. 

How Do Credit Limits Work?

Credit limits for loans are simple. Lenders distribute a borrower’s total credit limit after they sign their loan contract. The borrower then pays back that credit in fixed monthly installments for a set duration of time. At the end of the loan period, the borrower may either move on, having paid off their loan, or they may reapply for new loan funding. 

A credit limit for a credit card can be a bit more complicated. When borrowers first receive their credit card account, they are assigned a specific credit limit. During their billing cycle, usually one month, borrowers may spend up to their credit limit. Once they have spent their card’s credit limit, they must either pay off part of their balance or wait until their next billing cycle to gain access to their renewed credit limit. 

Do Credit Limits Have Interest Rates?

Yes. With most types of borrowing, interest rates are unavoidable. For loans, borrowers are charged interest on their total loan amount. For credit cards, borrowers are only charged interest on what they spend, not their entire credit limit. 

What Is the Average Credit Card Limit?

Average credit card limits are based on a few different factors. When they determine credit limits, credit card issuers look at details such as a borrower’s credit score, their general income, as well as any card history a borrower may have had with the issuer in the past. A credit card issuer will also take their own policies and guidelines, as well as economic conditions, into account when assigning credit card limits.  

Below is a breakdown of the average American credit limits organized by generation. 

  • Generation Z: average credit limit of $9,235 as of 2022 and $9,857 as of 2021. 
  • Millennials: average credit card limit of $21,198 as of 2022 and $22,136 as of 2021. 
  • Generation X: average credit card limit of $33,186 as of 2022 and $33,694 as of 2021.
  • Baby Boomers: average credit card limit of $38,945 as of 2022 and $38,898 as of 2021.
  • Silent Generation: average credit card limit of $32,366 as of 2022 and $31,937 as of 2021. 

Credit Scores

One of the most influential factors that help credit card companies determine card limits is the credit scores of their borrowers. Typically, if you have a high or excellent credit score, you will be paired with a higher credit limit. But, if your credit report is lacking, you may end up with a much lower credit limit. 

Income, or Debt-to-Income Ratio

Credit issuers also care about how much money you bring in on a regular basis. When assigning credit card limits, issuers will look at what is known as a debt-to-income ratio. Your debt-to-income ratio is simply your general income compared to the total amount of debt you owe. For example, if you have an average yearly income of $50,000, and owe a total of $12,500 in debt, your debt-to-income ratio would be about 50%. 

History With the Credit Card Company 

Credit card companies also care about past history. Many credit card issuers are often willing to extend better deals, including lower interest rates or a higher credit limit, to borrowers who have worked with them in the past. So, if you already have a credit card and are looking for a credit limit increase, you should definitely consider working with your current card issuer. 

Your first credit card limit may not be very high because there isn’t a lot of solid credit history backing up your financial profile. As time goes on and you use your financial accounts responsibly, you should be able to gain access to a higher credit limit.

Current Condition of the Market

Current economic conditions also affect the kinds of credit limits a credit card issuer can offer. If the market isn’t doing so well, card issuers may be forced to only work with high-interest rates and low credit limits. But, if the market is in good condition, issuers have the freedom to extend higher limits at lower rates. 

How Do I Get a Credit Limit Increase?

Borrowers may receive an increase on their initial credit limit automatically from their credit card issuer or lender. Card issuers may increase a credit limit automatically if they see the account holder: 

  • Has an increase in their amount of regular income. 
  • Has improved their credit score. 
  • Are successfully paying off debts. 

Or, borrowers may also contact their credit card issuers or lenders to request a credit limit increase of their own volition. You don’t have to wait for your credit card issuer to give you a credit limit increase; you can inquire with them yourself. Simply contact your credit card company’s customer service team, and inform them you need to speak with an agent about increasing your credit limit. 

Tips for Receiving a Higher Credit Limit

Looking to receive higher credit limits? Check out the tips below on increasing your chances of receiving and automatic credit limit increase from your credit card issuer. 

Update Your Income

Sometimes your income doesn’t always stay the same. If you land a new job that pays a higher salary or receive a promotion or raise at your current job, make sure the credit bureaus know about it. 

Seeing that you bring in more money on a regular basis may be enough for credit card issuers to boost a credit limit a few hundred or even a few thousand dollars. 

Build Your Credit 

Another great way to receive a possible credit limit increase is to work on building your credit. When you improve a bad credit score, you’re open to so many more financial opportunities like: 

  • A higher credit limit. 
  • More loan products. 
  • Better interest rates. 
  • Increased funding amounts. 

Building credit takes time, so start making changes now to reap the benefits later on. Some steps you can take to improve your credit score now are: 

  • Work on payment history: making timely payments has the potential to affect credit scores the most. Set up a reminder on your calendar or smartphone to make your recurring payments each month. Or, rest assured knowing your payments are being taken care of automatically by signing up for autopay. 
  • Limit hard credit inquiries: every time you apply for a credit card or loan, lenders require an official copy of your credit score. These official requests are called hard credit inquiries. Each time there’s a hard credit inquiry on your profile, you may see your credit score drop around 5 points. Avoid unnecessary damage and only apply for credit when it’s necessary. 

Keep Your Credit Utilization Ratio at Around 30%

Your credit utilization ratio is the comparison of how much available credit you have against how much of it you are currently using. Since it’s a bit unrealistic to expect borrowers to hold a credit utilization of 0%, credit bureaus typically like to see borrowers at around 30%. 

Here’s an example of how credit utilization works: say you had three credit cards with a $1,000 limit. If you held a balance of $500 on each card, your credit utilization would be approximately 50%. To hold a ratio of at least 30% in this scenario, you would want to try to keep the balance on each card no more than $300.

Stay Away From Risky Funding Options

Some types of funding aren’t designed to set you up for success. Fast payday loans online are an example of this type of funding. Payday loans almost always come with inconvenient interest rates and payback terms that often leave borrowers in more debt. Protect your finances by staying away from these types of loans altogether. 

The Bottom Line: Average Credit Limit

The average credit limit for a loan or credit card will depend on factors like credit scores, credit history, and they way you interact with your various financial accounts. If you want to raise your credit card limit, you can either talk with your card issuer or show your card issuer that you deserve an increase by developing healthy financial habits. 

References:
What’s the Average Credit Limit on a Credit Card? – Experian
Credit Card Debt in 2021: Balances Slightly Decline – Experian