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Your credit limit — that is, the maximum amount available for you to spend using a credit card — is usually a mystery until after you get approved for a new credit card. Therefore, it’s understandable that you may be grappling with disappointment if you qualified for a lower credit limit than you hoped for or needed on your new credit card.
After all, you probably had big plans for that new credit line — doing a balance transfer, making a large purchase or capitalizing on a welcome offer. Even if the credit limit isn’t as high as you were expecting, you may not want to act hastily and close the card. Instead of hurting your credit score, there are a few actions you can take to get closer to the credit limit you need.
How do issuers set card limits?
Your card issuer sets the credit limit on your card based largely on your credit application as well as any card or issuer-specific rules for the card.
When you apply, the issuer assesses the stated annual income on your card application and weighs what sort of credit limit it can support, while also 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’ve been using them.
Since your limit is based on information obtained when the issuer does your credit pull, it’s rare to see a credit limit before being approved for the card. Some issuers do provide a credit limit range if you go through a preapproval or prequalification process.
Why is my credit line so low?
When you received an approval notice with a lower credit limit than expected, you may have had this exact question. It could be that the lender’s assessment of your credit history revealed:
- A lack of previous revolving credit experience
- Your debt-to-income ratio is high
- Prior issues on your credit report
- High balances on existing credit accounts
To know for sure, check your credit report to see what could be affecting your score. However, your low limit could also be because the card you were approved for doesn’t offer 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 an approved card
To assess your application, your issuer likely ran a hard pull on your credit. This lowers your credit score for a brief period — usually by about two to 10 points, depending on where your credit history currently stands. Even though your card is still fresh, the damage to your credit score is already done once the lender runs the credit check. So canceling a card after your application is approved results in a wasted credit pull.
Closing the card may also nullify any improvements to your score that you’ve seen after opening a new credit line. For example, you may have seen your credit utilization rate drop with the addition of a new credit line which could positively impact your credit score. If you decided to close the card, you would also lose that score increase.
The bottom line
Getting approved for a lower credit limit may mean a hit to both your confidence and your credit score. If you were assigned a lower credit limit than you expected, canceling your new credit card means you’ll have taken a hit to your credit score without anything to show for it. Instead, you could call your issuer, request a limit increase after improving your credit score or even request to switch cards with the same issuer. In some cases, your best bet may be to learn to live with the lower limit for a time, adjust your spending plans for the card and use it responsibly to demonstrate you deserve a higher limit.
Whichever route you choose, make sure to continue improving your credit score by making timely payments and keeping your balances low. In time, you’ll qualify for a higher limit either on your current card or when you apply for your next one.
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