Obtaining approval for a credit card can be challenging if you have no credit history. Typically, you must apply for a secured credit card and provide a security deposit. If it's your first credit card, it probably has a low credit limit, but don't be alarmed; that's normal.
If you obtain your first credit card from a retail establishment, your initial credit limit might be as low as $100; however, if you obtain your first credit card from a bank or other financial institution, you might be granted a slightly higher initial credit limit of up to $500. Your initial credit limit is probably not going to be more than $1,500 unless you already have credit history, such as a mortgage or car loan, on file.
Reasons Your Limit Might Be Low
Credit history is one of the criteria credit card companies use to determine an applicant's credit limit. A person will have a better chance of being approved for a higher credit limit if they have a history of responsible credit management. You don't, however, have a history of responsible credit card use because you're a new user. Your credit card company will typically start you off with a low limit because it is unsure of how much credit you can handle.
Limit on an average credit card
Your credit history is compiled by credit reporting agencies like Experian, TransUnion, and Equifax to help credit card companies determine your credit card limit. Super-prime consumers are those with credit scores between 720 and 850, while subprime consumers are those with scores under 580. Super-prime consumers' average credit limits are $11,000, while subprime consumers' average credit limits are $1,200. Some high-net-worth people with excellent credit may have credit limits in the six figures or even no predetermined spending caps. Due to their excellent credit histories and capacity to pay off large balances, these people have higher credit limits.
Keeping Your Credit Limit Low
Don't be discouraged by your initial credit limit because starting small is better until you get used to managing credit. As long as your credit limits prevent you from going overboard, you won't rack up a lot of credit card debt. You'll gradually be eligible for higher credit limits as you show that you can use your credit card responsibly by making on-time payments on all of your bills and refraining from using it to the limit.
After making on-time payments for several months, some credit card companies will automatically raise your credit limit. Others won't raise your credit limit unless you ask them to. Prior to requesting a credit limit increase, wait until you have made all of your credit card payments on time for at least six months.
How to Increase Your Credit Limit at First
If you apply jointly with someone who has a good credit history and stable income, you might be able to get your first credit card with a higher credit limit. Another choice is to apply for a secured credit card, which requires a security deposit equal to the desired credit limit.
For a $2,000 credit limit, for instance, you would put down a $2,000 security deposit. If you maintain good account standing with a secured credit card, your security deposit is reimbursed to you. Getting approved for unsecured credit cards with higher limits will be simpler if you start with a bigger credit limit and manage it responsibly. You should only use the money you have available during that time since your security deposit isn't usable until you cancel your credit card.
Obtaining an Increase in Credit Limit
As long as you don't go over your credit limit, pay your bills on time, and take good care of the rest of your credit, there's always a chance for an increase, regardless of your initial credit limit. If you have used your credit responsibly, many credit card companies will review your account on a regular basis and automatically increase your credit limit. For instance, Capital One automatically raises the credit limit on a number of their credit cards after you've made your first five on-time monthly payments.
You can ask for a limit increase online or over the phone if your credit card company doesn't automatically do so. Your credit card company will examine your account history, credit history, current monthly income, and other debt obligations when you ask for a credit limit increase. You stand a good chance of approving your request for a credit limit increase if these favorable conditions are favorable. The credit card company will notify you in writing if your request is denied. You can decide what behaviors you need to modify based on the information in the letter in order to be accepted for your next credit limit increase.
Most Commonly Asked Questions (FAQs)
How do credit limits work?
Your credit limit is the maximum amount you will ever be able to borrow from a creditor. It frequently applies to revolving credit accounts, such as credit cards or credit lines. You won't be able to take out more loans after reaching your limit because you must pay off the remaining balance on your account before you can do so.
What happens if your credit limit is exceeded?
Normally, your credit limit is not something you can go over. The majority of the time, your credit card will be declined and locked until you make a payment if you try to spend more than the allowed amount. You might be hit with high fees and higher interest rates, though, if your card issuer permits you to spend more than the cap.
Should I use a certain percentage of my credit limit?
"Credit utilisation ratio" is the measure of how much of your total credit limit you use in a given month. Your credit score will be negatively impacted if it is higher than 30% because it is a significant factor. To put it another way, if your total credit limit is $10,000, you should aim to keep the total of all of your balances under $3,000.