What Is the Average Credit Limit by Income?
A high credit limit is the key to using your credit card without restrictions. But how much impact does your income have on your limit?
April 7, 2022
Few things influence your spending power more than your income, so it makes sense for credit card companies to consider this factor when deciding how much of a credit limit you should be able to access. Yet income is far from the only factor at play in this decision. So, what’s the average credit limit by income — and is it even possible to deduce your credit limit based on your salary?
From the get-go, we have to admit something: Credit card issuers aren’t known for freely giving out crucial information about their lending practices, so we don’t have access to data on the averages.
However, we’ll explain the link between your income and credit limit. We’ll outline which factors affect credit limit, the role of your income and how to work on boosting your credit limit if it’s not where you want it to be right now.
How creditors decide credit limits
Let’s rewind for a second. When you make a credit application, credit card companies will ask you a range of questions about your personal information and check your credit history to see what kind of borrower you’ve been in the past.
The aim is to determine how creditworthy of a borrower you are. The more you’ve shown that you regularly pay your credit card balances, the more likely creditors are to give you a credit card with a lower rate and a higher limit.
When deciding on your credit limit, some factors credit card providers consider include:
Payment history: Including any missed or late payments in the past, whether you’ve ever been bankrupt and how long your accounts have been open
Debt balances: The total amount you owe to lenders and how much credit you can currently access (including your credit card accounts and other loans)
Income: Whether you’re able to pay your bills and debts comfortably
Accounts open: Including loans and other accounts
Recent credit applications: Whether you’ve made any recent applications for a new card or loan
Credit score and credit report: Looking for signs of a good credit file and strong borrowing history
In some cases, economic conditions may also be relevant. During times of uncertainty, lenders often tighten their lending criteria for new accounts, meaning even the most responsible borrowers may face lower credit limits.
Also, some credit cards and providers are known for awarding higher credit limits, such as American Express and the Chase Sapphire Preferred Card.
Credit limit and income
As you can see, income is on the list of factors that affect your credit score. Assuming you’re over 21, valid income sources include:
Income from self-employment
The income of your partner
Distributions from a retirement fund
Applicants 18 to 21 years old can also report income from financial aid (such as scholarships and grants).
In most cases, you won’t be asked to verify your income, but if you are, you can provide proof with pay stubs or tax returns. Some lenders may ask you at regular intervals whether your income has changed to ensure their records are up to date.
Income is an important factor since it demonstrates a cardholder’s spending power. However, the relationship isn’t as clear cut as you might think. Credit card companies consider your income alongside the other factors outlined above.
Someone with an annual salary of $50,000 could end up with a higher credit limit than someone with a salary of $100,000 if they score well in other aspects, such as having a better FICO™ Score.
They may also consider your debt alongside your income to work out your debt-to-income ratio, which is monthly debt divided by monthly income. The lower the ratio is, the better. If a high earner is using a high percentage of their earnings to cover their debts, giving them a high credit limit may be more risky than someone with a lower income but little to no debt.
Average credit limit by income
The average credit card limit across all borrowers in 2020 was $30,365, according to Experian data — but bear in mind that this number is an individual’s overall credit limit and may include limits on multiple credit cards.
Credit card issuers don't usually make their lending practices public, and data surrounding credit limits is few and far between. It’s hard to find information about the credit limits for specific credit cards, never mind the average credit limit by income.
But we can still make a few deductions.
A report by the Federal Reserve on lending requirements noted that, “While borrowers with higher earnings generally face lower rates and higher credit limits, the differences across income groups are small.” In other words, although a higher income has some level of influence, a borrower’s credit history has a greater impact than their income.
You may also be able to estimate the kind of credit limit range you can expect based on how much money you have left each month after covering necessary expenses and any debts.
When opening a new account or increasing a credit limit, card providers are required “to consider the consumer's ability to make the required minimum periodic payments … based on the consumer's income or assets and the consumer's current obligations."
Considering a credit card’s minimum payment typically ranges between 2% and 4%, someone with $300 left over each month after their other obligations and a minimum payment requirement of 4% may receive a credit limit of around $7,500 (300 divided by 0.04).
However, this will only be a rough estimation since so many other factors come into play, and each credit card company has their own credit limit policies.
Why your credit limit matters
Increasing your credit limit isn’t just about having more cash to spend each month. Your credit utilization rate (the percentage of available credit you use each month) has a significant influence on your credit report and credit score because it indicates how much you rely on credit.
If you have a lower credit limit and want to make large purchases, it can be tough to keep your credit utilization ratio low, and is another reason why having a high credit limit can be beneficial.
How to increase your credit limit
So, how can you secure a credit limit increase?
For one, keep your credit card debt to a minimum. If you demonstrate good borrowing habits, your credit card company may increase your credit limit gradually over time without you even having to ask them.
But if you want to build credit more quickly, consider contacting your lender directly and asking them. Assuming you have a good history with mostly on-time payments, they may be willing to increase it by 10% to 20% — especially if you can mention that you’ve had a recent pay raise or improved your credit.
Alternatively, you could consider opening a new credit card. Provided you fare well in the aspects we’ve outlined above, you stand a good chance of increasing your credit limit significantly. Even if your new credit card has the same credit limit as your current credit card, your overall credit limit would double.
However, the new application would appear on your credit report as a hard inquiry, which may have a small, short-term negative impact.
Don’t let this limit you
Figuring out the exact average credit limit by income might be tough, but there’s one thing we know for sure. Having a high income and a strong borrowing history give you the best chance possible of boosting your credit limit, which in turn can help you achieve a strong credit score.
If you need to work on your credit history to improve your chances of securing a better credit limit, it might be time to hone your knowledge of personal finance. Subscribe to Tally's† newsletter for plenty of tips and tricks sent straight to your inbox.
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