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Is it good to have a high credit limit?

Yahoo Personal Finance· Getty Images
Ben Walker (CEPF, CFEI?)
·Senior Writer, Credit Cards
Updated 6 min read

A high credit limit can help your credit score because it could lower your credit utilization ratio, or how much of your total available credit you use. Lenders typically want to see you use 30% or less of your available credit.

On the other hand, having more credit could lead to increased debt because of the additional spending power.

Let’s explore the pros and cons of high credit limits and see if a high-limit credit card, like a travel rewards card, makes sense for you.

Since lenders typically like to see you use 30% or less of your available credit, having more total credit is an easy way to lower your credit utilization ratio.

For example, making a $200 purchase on a card with a $500 limit would use 40% of your available credit. If you were to make that same purchase on a card with a $2,000 limit, you would only use 10% of your available credit.

Your credit utilization affects your credit score, so it’s important to avoid using close to your max credit card limit in most cases. Keep an eye on your credit utilization rate to build toward a higher credit score.

With more available credit, you can buy more things. That doesn’t necessarily mean it’s time to go on a shopping spree, but having more spending power for your everyday needs is nice.

For instance, a higher credit limit could be helpful if you recently moved into a new home and need to buy furniture.

Earning more cash back, points, or miles can be a welcome byproduct of having a higher amount of credit. Using the example above, if you have enough credit to buy new furniture, you can also earn rewards for purchasing that furniture if you have a rewards credit card.

Earning rewards on everyday spending might not mean much on one or two purchases, but it can add up over time.

For example, the most recent Consumer Expenditure Survey (U.S. Bureau of Labor Statistics) shows that the average U.S. household spends $25,096 on food, transportation, and entertainment annually. With a 2% cash-back card, you could earn over $500 on that amount.

It might seem cliche, but you never know when disaster will strike. A credit card can act as a temporary emergency fund if you need immediate car repairs, a flight home, or any other number of things.

There’s generally little downside to having a high credit limit. However, whether having more credit makes sense for you depends on your spending habits.

Having a high credit limit or increasing your credit limit doesn’t make sense if you:

Both of these scenarios could lead to more debt if you were to have more purchasing power. So, while it’s generally recommended to use credit cards to increase your financial opportunities, they aren’t a good fit in every situation.

You can typically increase your overall available credit by receiving a credit limit increase on an existing card or by opening a new credit card.

One thing to note is that requesting a credit limit increase (not receiving an automatic increase) could result in a hard inquiry, while applying for a new credit card almost always results in a hard inquiry.

This type of credit check into your credit history could negatively impact your credit score in the short term.

Here are some ways you can increase your available credit:

If you have an existing credit card, you can request a credit limit increase from most card issuers. That typically means calling your credit card company or requesting a credit line increase online.

For example, Capital One allows you to request a line of credit increase through your online account via the Capital One mobile app or website. You typically need to provide your total annual income and employment status. In some cases, you may have to provide how much you pay for your monthly rent or mortgage.

Some credit card issuers automatically review your account and could increase your credit limit based on your activity. Our experience shows no negative impact on your credit score if you receive an automatic credit limit increase.

To help receive an automatic increase, you need a card from an issuer that performs automatic account reviews. You also need to use your card responsibly by regularly making purchases and paying off your credit card balance and bills on time. Note that your monthly payments should be the entire balance and not just the minimum payment if you want to avoid high interest rates.

Another way to increase your overall credit limit is to apply for a new credit card. Note that becoming a new cardholder just about guarantees a hard credit check since you’ll be applying for a new line of credit.

If you want more credit, applying for a high-limit credit card makes sense. Card issuers generally don’t release official credit limits for their cards, so this list is based on our experience and research:

If you’re a small business owner, business credit cards are an excellent way to get a higher credit limit. In our experience, we haven’t been approved for a business card with less than a $5,000 limit. However, your credit limit depends on your unique circumstances, including your creditworthiness.

Here are some of our business credit card recommendations:

Your creditworthiness and the card issuer play a significant role in the credit limit you might receive. Still, premium travel cards tend to have some of the highest credit limits available. That includes cards like the Chase Sapphire Reserve and Capital One Venture X.

A high credit limit could lead to more debt if you use more credit than you can handle. Apart from this, there’s generally no downside to having a high credit limit. With more available credit, you could lower your credit utilization and increase your credit score, while also having more spending power.

If you’re new to credit cards, a good credit limit is likely between $500 to $1,000. This gives you enough credit to afford everyday purchases while learning to use a credit card responsibly. With regular card use and always making on-time payments, you could qualify for a credit limit increase or cards with higher credit limits down the road.

This article was edited by Rebecca McCracken

Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn't include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.