My new card has a lower credit limit than I expected

A card’s credit limit determines how much you can spend using it, and most consumers tend to prefer a higher credit limit to a lower one.

Reader Matt is wondering what to do if, after applying for a card and being approved by the card issuer, he finds out that the credit limit assigned to him is not what he wanted. “I am advised that you cannot find out what your credit limit will be until you have applied for and been accepted for the card,” Matt says.

He wonders if he can cancel the card immediately, considering the credit limit is not to his satisfaction, without any impact to his credit score.

What is a card’s credit limit?

A card’s credit limit, also called its line of credit, is the maximum amount available for you to spend using that card. When you use your card, you draw down on this credit limit.

For instance, if the card’s total credit line is $10,000 and you use it to make a $500 purchase, you will then have only $9,500 of the credit line left for you to draw on. Once you pay off that $500, the card limit will once again reset to $10,000.

The average total credit limit for an American (adding up the credit limits on all the cards they hold) was $30,233 in 2021, Experian reports. This varies by generation, with a Gen Z individual, on average, enjoying access to a total credit limit of $8,062 and a Baby Boomer being, on average, able to access a total credit line of $39,919.

Issuers set card limits

Your card issuer is the one that sets the credit limit on your card. It will delve into your financial situation and payment history to decide if it wants to raise or lower your credit limit.

When it comes to setting a credit limit on a new card, your card issuer will set a credit limit after you apply. To set this limit, the issuer will assess the stated annual income on your card application and weigh what sort of credit limit it can support, while taking into account your other stated financial obligations such as your housing expenses. It will also peruse your credit report, looking for information on other credit accounts you have and how responsibly you have been using them.

If your new card comes with a lower credit limit than you expected, it could be based on the lender’s assessment of your credit history. However, it may also be that the card you are granted does not come with a higher credit limit. If the issuer offers you a different card than the one you applied for, and you are not on board with the terms of the switched card, you can ask for their reason for denying you the card you applied for.

Credit fallouts from canceling approved card

Before issuing your card, your issuer will have already done a hard pull on your credit. This has the effect of lowering your credit score a bit for a brief period. The score will take a hit because the fact that you are shopping for new credit introduces some uncertainty for lenders. The scoring algorithm is factoring this in.

The damage to your credit score is already done at the point the lender approved your credit card, so canceling a card after your application is approved will not be helpful.

If you have been preapproved for a card, the lender will likely have done a soft pull on your credit. This is different from a hard pull and will not have any credit consequences.

The bottom line

A card issuer will weigh various factors, including your stated income and credit history, before deciding what credit limit to assign on a new credit card. You should get a copy of your credit report and see if there is anything there that has impacted your credit score, resulting in a lower credit limit than you wanted.

If you find your issuer has offered you a different card than you applied for and you’re not happy with the credit line offered, contact the issuer and ask for an explanation

Matt, canceling your card after it is approved will not take away any negative impact to your credit score from the issuer’s hard credit inquiry. That is already a done deed. You could follow up with the issuer to see if it can approve you for a higher credit limit after a period of responsible card use or find out if you’re eligible for a different card with a higher limit.

Contact me at pthangavelu@redventures.com with your credit card-related questions.