How credit card limits work: how they're set, raised and cut

How do card issuers decide your credit limit?

Each issuer uses its own rules, looking at your credit history, scores, income and debts. By law it has to consider whether you can make the minimum payments.

Capital One lists the factors that can determine a limit: credit history, credit scores, income, current debts and debt-to-income ratio ^[2]. Every lender sets its own limits ^[2].

Regulation Z section 1026.51 bars an issuer from opening a card or raising a limit without considering your ability to make the required minimum payments, based on your income or assets and your current obligations ^[1]. The CFPB's commentary says that applies whether you ask for the increase or the issuer starts it ^[1].

Does asking for a credit limit increase hurt your credit?

It depends on the issuer. Capital One says its increase requests use a soft inquiry, which doesn't affect scores. Some issuers use a hard inquiry.

Capital One says a request won't affect your credit score because it uses soft inquiries for limit increase requests ^[3]. It also says not every issuer runs a hard inquiry for an increase, but some might ^[2]. Discover says that if your lender does a hard inquiry for the increase, your score may drop for a while ^[5].

Ask the issuer which kind of inquiry it uses before you request. How hard pulls count is covered in hard inquiries.

1. Check the account is eligible Capital One says accounts opened in the last few months, secured card accounts and accounts with a recent limit change generally can't get an increase ^[3].
2. Have your numbers ready Capital One may ask for your total annual income, employment status, monthly housing costs and projected monthly spending ^[3].
3. Request in the app, online or by phone Capital One says you can usually request one from your credit card account ^[2].
4. Wait before asking again If the request is turned down, Capital One suggests waiting several months before the next one ^[3].

Do credit card companies raise limits automatically?

Sometimes. Issuers may raise your limit on their own after a stretch of responsible use, or after your income goes up.

Capital One says your card company might raise your limit automatically once you've shown responsible use over time ^[2]. Discover says an increase in income may make you eligible for an automatic increase ^[5]. The ability-to-pay rule applies to those increases too ^[1], so if your income goes up, tell the issuer.

A higher limit with the same balance lowers your credit utilization. Discover says an increase may help your score if you keep utilization low ^[5]. Example: $1,000 owed on a $4,000 limit is 25%; on a $5,000 limit it's 20%.

Can a credit card company lower your limit without warning?

Yes. Issuers generally can cut your limit, even to zero available credit. They must send an adverse action notice and wait 45 days before charging over-limit fees.

The CFPB says card companies can generally raise or lower limits, including cutting a limit so you have no available credit left ^[6]. If that happens, you can't make new charges until you pay down some of the balance ^[6].

Most big changes to your terms need 45 days' written notice ^[7]. A limit cut isn't one of them. Instead, the issuer has to give you notice at least 45 days before it charges an over-limit fee or a penalty rate for going over the new, lower limit ^[7]. The CFPB adds that the issuer generally must send an adverse action notice when it lowers your limit, giving the specific reasons or telling you how to ask for them ^[6].

Can you be charged a fee for going over your credit limit?

Only if you opted in to the issuer's over-limit coverage. Without opt-in, the issuer may still let a charge go through, but it can't charge a fee for it.

Regulation Z section 1026.56 bars an over-limit fee unless you gave affirmative consent to the issuer paying over-limit transactions ^[8]. You can revoke that consent at any time, and the issuer must act on it as soon as reasonably practicable ^[8]. Even with opt-in, the issuer can't charge more than one over-limit fee in a billing cycle ^[8].

If you haven't opted in, the issuer may still pay an over-limit charge, as long as it charges no fee for it ^[8]. Capital One says going over a limit can mean declined transactions, and that an issuer can charge a fee only if you take part in its over-limit coverage program ^[4].