Did you know that the first credit card spending limit that ever existed was $300? That was back in the late 1950s, and since then, credit cards have exploded in use.

Credit card limits and usage of since limits have since expanded into the thousands of dollars, but where does this limit come from, and how does it get determined? Let’s take a look.

Credit Card Spending Limits: What Are They?

The credit limit itself is fairly straightforward: it is the max amount of dollars you can charge on something such as a credit card or other types of revolving credit accounts.

A credit limit is different from a card’s available balance in that your credit limit will generally stay at one set amount, from which purchases and transactions are made. Your available balance will then fluctuate in relation to your available credit limit.

Credit card spending limits are typically calculated a few ways.

How Are They Calculated?

Banks and lenders set credit limits depending on a few factors. Lenders will look at previous payment history (if available), how many other lines of credit you have open, as well as any current outstanding debt. Your lender will also take into account current income amounts to calculate your limit.

All of these factors combine to create your credit history and credit score, which will ultimately affect what limits you are eligible for.

Credit-Based Example

Credit card companies generally look at credit scores to determine max limits on a card. As mentioned above, this will include factors like your previous payment history, the length of your credit history, as well as any new inquiries.

For example, if a card offers a range of available limits from $500 to $5,000, the higher your current credit score, the more likely you are to receive the $5,000 limit on your card.

As an aside, some cards do have a fixed or pre-determined limit amount. These fixed limits generally apply to first-time cards or cards used specifically to help consumers build up their credit scores.

Credit Card Tips

There are a few things to keep in mind when it comes to credit limit utilization. It’s always a good rule of thumb to track your spending and avoid utilizing every dollar amount your limit provides.

It’s also helpful to do your research before selecting the first card that you apply for. Are you hoping for perks such as money back? Perhaps you’d like to avoid paying an annual fee? Looking for corporate credit cards that fit your business needs? You can click here for further information.

Many credit cards offer a host of bonuses to take advantage of. By doing a little bit of research before signing up, you’ll be more likely to find the right fit for your circumstances.

The Best Credit Cards Work for You

Understanding your credit card spending limit will ultimately help you manage your credit and spending in the long term. Keep your credit limit utilization low and you’ll be sure to keep your credit score high.

If you’re interested in making improvements to your credit and beyond, be sure to browse through any of our information-packed articles on our homepage!