A credit limit is the maximum amount of credit that a financial institution or other lenders will extend to a debtor for a particular credit line (sometimes called a credit line, line of credit, or a tradeline).
This limit is based on various factors ranging from an individual’s ability to make interest payments, an organization’s cash flow or ability to repay the credit card debt. It is an obligation of the consumer to pay just like all other parts of the balance.
Your credit score sometimes referred to as your FICO score, is normally associated with your ability to get a mortgage or be approved for a credit card. However, your credit report can also impact your ability to get a job or land the apartment or rental of your dreams.
Average American Credit Limits
Higher The Score, The Higher The Credit
An important factor that your credit score has control over is the amount of credit you can get from a lender when opening a credit account.
As you must possibly understand, the higher your credit score, the more willing lenders will give you credit and an attractive interest rate.
Similarly, the lower your credit score, the less likely lenders will give you a high credit limit and/or an attractive rate of interest.
Facts Don’t Lie
According to data from Experian, the first three months of 2015, here are the average credit limits for Americans based on various categories of credit scores.
- Super prime (781-850): $9,543.
- Prime (661-780): $5,209.
- Near prime (601-660): $2,277.
- Subprime (500-600): $966.
- Deep subprime (300-499): $509.
One of the more notable trends presented by Credit.com, which aggregated Experian’s first three months of 2015 average credit limit data, is that average credit limit amounts declined across all five categories on a year-over-year basis.
The most profound declines were expectedly experienced in the near prime, subprime, and deep subprime categories. These were the groups most notably responsible for failing to pay their mortgage and leading to the housing bubble.
This could validate that even with the U.S. economy modestly improving, givers are still hesitant about giving out credit to customers with below-average credit ratings.
How To Boost The Credit Score?
Firstly, if you have a subpar credit score and are looking for quick improvement, consider bargaining a potentially unpayable balance with your lenders.
Though it may be difficult to admit that you cannot pay your bill, your lender would much rather work with you and create a payment plan than turn your account over to a collection agent and must split a percentage of the collection with them. Also, it’ll end up being much better for your credit score in the far future.
Secondly, consider examining your credit report closely and try to understand each component better. All Americans can review their credit report once every year, for no charges, from each of the three credit reporting agencies.
Thirdly, you should be looking for any credit irregularities and mistakes between the three authority bodies. Errors on a credit report are unfortunately not uncommon. If you find an error and can resolve it with one or all credit bureaus, you may be able to immediately improve your credit score and possibly your credit limits.
By all means, keep an eye on all the parameters that can improve your credit score. Start with a simple review, and make sure you know what each component means for your score and how you can work on it.
Don’t forget that a good credit score is important to get loans and get hired by your future workplace.