How Much Credit Should I Have? A Look at How Much Is Enough

There are a wide range of variables to account for when building your personal finances. And credit cards themselves have multiple factors to consider, like interest rates, annual fees, minimum payments and more. One credit card variable that can have a substantial impact on your overall financial health — particularly your credit score — is your credit limit. 

Your credit limit is the maximum amount your credit card company will allow you to charge on your account. Since it can have such a significant impact, you may ask yourself, "how much credit should I have?" 

Let’s tackle this question and some other credit-limit-related topics to bring a little clarity to the topic.

How much credit should I have? It depends

When determining how much available credit you should have, there isn’t necessarily a magic number. Financial situations and fiscal responsibilities differ from person to person, so the credit card limit you carry will likely be different than your neighbor's or friend's. 

While there are no hard-and-fast rules on credit limits, there are some guidelines you can use to help you determine a range that's good for you. 

Consider your level of financial responsibility

When deciding how much credit you should have, the first factor is your overall financial responsibility. If you can manage your credit card debt responsibly, you can likely afford for your credit limit to be a little higher.

The higher your combined credit limits are, the lower your credit utilization will be. The lower your credit utilization is, the more positive its impact is on your FICO credit score. Plus, there's no detriment to having a high credit limit in many lenders' eyes, as long as you keep the utilization low. 

If you’ve had spending issues in the past or know you can't trust yourself with a high-limit credit card, you can aim for a lower limit to remain safe, i.e. $500-$1,000. 

This is a good starting point, but there are other variables to keep in mind while you determine a limit that’s good for you.

Think about your plans for your credit cards

If your credit card accounts are simply there for an emergency that’s too large for your emergency fund to handle, or you haven't built one yet, aim for a credit limit that matches three to six months of your salary. This will allow you to cover emergencies while you build your fund. 

If you plan to use a credit card to build credit, there's no high or low credit limit to target, as long as you use it responsibly and can afford to pay off the entire statement balance each month. 

If you plan to use credit cards to manage your monthly expenses and pay the credit card bill off in full every month, there are some necessary calculations to perform. 

First, determine the monthly expenses you plan to pay with your credit card. 

For example:

• You have $3,000 per month in expenses that you’d like to pay with your credit card 

• Divide that number by 30% to determine the limit you need that will still keep your credit card utilization rate at 30% or lower

• You’d determine that you want at least a $10,000 limit based on the 30% credit utilization rule of thumb 

Keep in mind, however, that the higher the credit limit you can get in this case, the better.

Factor in promotional offers for big-ticket items

Many financial advisors recommend saving for big-ticket items instead of putting them on credit cards. However, some credit card companies offer new or existing cardholders great promotional offers, like 0% interest for 18 months. This makes purchasing big-ticket items and spreading out the payments simple and interest-free.

Since you're planning to let part of the balance remain on your credit report for the promotion's duration, it’s wise to keep your credit utilization ratio in check to avoid damaging your credit score. 

Similar to the above calculations, divide the cost of your big-ticket item by 30% to determine the credit limit you'd need to stay under a 30% credit utilization rate. 

For example, if you wanted to buy a $1,000 television on a 0% APR promotion for 18 months, you'd need a credit limit of at least $3,333.33 to remain under 30% for the promotion's duration. 

If you do decide to take advantage of a promotional credit card offer, it’s smart to create a payment plan for yourself that fits within your budget, so you can avoid accruing interest charges when the promotional period ends.

Stick to the average if you’re unsure

If you have no set plans for your credit cards and simply want to go with the average American credit limit, that’s fine too. In 2020, Experian found the average credit card limit in the U.S. was $30,365. 

Of course, not every American holds that credit limit. In fact, it varies significantly from generation to generation. Millennials and Generation Z are on the lower end compared to Baby Boomers, but this is likely due to the younger generations' limited credit history. 

The Millennial and Gen Z folks will eventually reach the same level as the older generations. It simply takes time to build the credit needed to secure these higher credit limits. 

How to get a higher credit limit

If you find your current total credit limits are too low, you can fix this in a couple of different ways:

• Apply for a new credit card. This will result in a hard credit inquiry, a shortening of your length of credit history and new credit on your credit report — all of which may result in a slight credit score decrease.  However, if the new credit card results in a sharp decrease in your credit utilization ratio, this low credit utilization may make up for those smaller negative impacts. 

• Request a credit limit increase from an existing credit card. Many credit card issuers offer the ability to request a limit increase online, but you may need to call the phone number on the back of your credit card. When you use this method, the only negative credit score impact you may notice is a hard inquiry. 

Your recommended amount of credit depends on your situation

The bottom line is: the credit limit you need depends on your unique situation. So, if you’re wondering, “how much credit should I have?" understand that there's no set number financial advisors can put out there as the “right” amount of credit. They would need a full picture of your financial health to make a recommendation.

What does matter is what you plan to do with the card, your ability to pay your bill in full each month and your overall financial responsibility. Once you determine these variables, you can figure out what credit limit works well for you.

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