A card's credit limit determines how much you can spend with it, and most consumers tend to choose a higher credit limit over a lower one.
Reader Matt wants to know what to do after applying for a credit card and getting approved by the card issuer, but he finds out that he's not getting the credit line he wanted. "I've been told that you can't be sure about your credit limit until you apply for and accept the card," Matt says.
He wondered if he could cancel the credit card right away without affecting his credit score, because the line of credit was not to his satisfaction.
What is the credit limit on a credit card? A credit card's credit limit, also called a credit limit, is the maximum amount you can spend with the card. When you use your card, you use this credit limit.
For example, if the card has a total credit limit of $10,000 and you use it to make $500 in purchases, you'll only have $9,500 in credit to withdraw. Once you've paid $500, the card's limit resets to $10,000.
Experian reports that the average American's total credit limit (the sum of the credit limits on all credit cards they hold) will be $30,233 in 2021. This varies by generation, with Gen Z having an average total credit limit of $8,062 and Baby Boomers having an average total credit limit of $39,919.
Issuer sets card limits Your card issuer is the one who sets the credit limit on your card. They look at your financial situation and payment history to decide whether to increase or decrease your credit limit.
When setting a credit limit for a new card, your card issuer will set the credit limit after you apply. To set this limit, the card issuer evaluates the annual income you declare on your credit card application and considers the type of line of credit it can support, taking into account other financial obligations you have imposed, such as your housing expenses. It also looks at your credit report, looking for information about other credit accounts you have and how responsibly you use them. If the credit limit on your new card is lower than expected, it may be because of a lender's review of your creditworthiness. However, it's also possible that the card that granted you didn't have a higher credit limit. If the card issuer offered you a different card than the one you applied for, and you disagree with the terms of the replacement card, you can ask why the card you applied for was declined. Credit losses due to canceled approved cards Your card issuer has already taken a heavy toll on your balance before issuing the card. This can slightly lower your credit score for a short period of time. Scores will take a hit, as the fact that you are looking for a new loan creates some uncertainty for the lender. The scoring algorithm takes this into account. By the time a lender approves your credit card, your credit has already been damaged. Therefore, it is not helpful to cancel the card after your application has been approved. If you are pre-approved for a credit card, the lender may deduct a small amount from your line of credit. This, unlike deadlifts, has no effect on credit scores. final result Card issuers consider a variety of factors, including your reported income and credit history, before deciding what credit limit to assign to a new credit card. You should get a copy of your credit report to see if anything on it has affected your credit score, resulting in a lower credit limit than you expected. If you find that the card issuer has offered you a different card than the one you applied for and you are not satisfied with the credit limit offered, please contact the issuer and ask for an explanation Matt, freezing your card after approval won't affect your credit score on hard credit requests from your card issuer. That's already a done thing. After you've used your credit card responsibly for a while, you can check with the card issuer to approve a higher credit limit, or to see if you qualify for another card with a higher limit.