What is a good credit limit?

You probably know what a good credit score is – it’s a straightforward number that reflects how well you manage your credit.

But do you know what a good credit limit is?

According to Experian, Americans had an average of $30,365 in credit available to them across all their credit cards in 2020.

But the question of whether your credit limit is good is a bit more nuanced.

Read on to learn what experts have to say about what a good credit limit is and see how yours stacks up.

See related: My credit limit was (almost) cut without warning

What is a credit limit?

Your credit card limit is simply the amount of credit a lender has extended to you, based on your credit scores and other barometers of your creditworthiness and ability to pay, such as your income.

Think of it as your total spending limit – and don’t exceed it or you might face a penalty.

Your credit score could take a hit and your issuer could close your account. Additionally, your transaction might be declined, your interest rates could rise, your credit limit could go down and you might have to pay a fee.

Stay within your credit card limits to avoid these headaches.

See related: Can I request a specific credit line when I apply for a card?

What is considered a good credit limit?

Paul Sundin. CPA and tax strategist at Emparion, said the answer depends on the credit card user.

The American Banking Association reported in May that super-prime consumers (with credit scores of 759 and above) are given an average of $9,329, while prime consumers (with credit scores between 680 and 759) are given $5,109 and subprime consumers (with credit scores of 680 and below) are given $2,541.

And some high-net-worth consumers are given even higher credit limits or don’t even have preset spending limits at all because of their exceptional credit history, Sundin said.

Ben Reynolds, CEO and founder of Sure Dividend, said a reasonable credit limit might mean a specific number to each person, so you shouldn’t base your credit limit on what’s considered “good.”

“People need to judge a good credit limit based on their income, spending habits and repayment strategies,” Reynolds said.

See related: Card issuers slashed billions in credit limits amid COVID

Credit utilization tops credit limit

Imani Francies, a finance expert at USInsuranceAgents, said your credit utilization is always more important than your credit limit.

And no credit limit, she said, measures up to the significance of keeping your utilization rate below 30%.

So, Francies said, if someone has a higher credit limit than you but they maxed out their $10,000 limit, you would be seen as more creditworthy if you pay off your $500 credit limit every month on time and never have your utilization rate exceed 30%.

How to get a credit limit increase

There are many ways to improve your odds of getting your credit limit raised – one good way is to raise your credit score since lenders usually give cardholders with great scores higher spending limits.

And once you improve your credit score – by paying on time, paying your balance in full and not opening a bunch of accounts at one time – you’ll get the added benefits of qualifying to the best interest rates and credit cards with the best rewards.

And keep in mind you can also use a secured credit card to build credit.

In addition, you can always ask for more credit after you get your card. As the economy improves and uncertainty fades, it should be easier to get.

But before you ask your lender for an increased credit limit, ask yourself if you’re doing it to lower your credit utilization ratio or if you’re just doing it so you have more money to spend. The latter would not make sense unless you have a plan to pay your balance in full every month.

Bottom line

The question, “What is a good credit limit?” varies among consumers and is based on your personal finance profile.

If you’re thinking about asking your issuer for a credit limit increase, make sure you have a compelling reason, such as your income has increased. And note that the issuer will also want to see your employment status and proof of your mortgage or rent payment.

If you decide to ask for an increase, make sure you’re asking for the right reason and consider how it will affect your credit utilization and your credit score.

And always keep in mind that using your card responsibly is key to your financial well-being.