Do Credit Cards and Charge Cards Have A Maximum Credit Limit? – Credit Card Insider


Hi, my name is John Ulzheimer and I’m a
credit expert who contributes to CreditCardInsider.com. If you have any
questions for us please submit them in the comments section below. Today’s
question has a lot of meat on the bones so I’m going to have to tilt to my computer and read it to you. The question is this: Do credit cards have a maximum credit limit? And then a follow-up to that is: Do charge cards have a maximum credit limit? So let’s talk about those because we’re talking about two things that a lot of people, they
use those terms interchangeably as if they’re the same thing: credit card, charge
card. So a credit card is what ninety percent of the population has in their wallet right now where they’re able to swipe it or if you have a chip card they’re actually able to slide it through a chip reader and they’re able to buy products and services and at the end of
the month they get a bill and then they have a choice: they can either pay the balance in full, or they can roll part of that balance from one month to the next. That’s called revolving. That’s the formal term for taking a balance from one month to the next. That’s a credit card. A charge card is, for example, the American Express Green
product, where you use the card exactly like a credit card to buy products and
services, but then at the end of the month when you get your statement
payment in full is due. You do not have the option to carry any part of
the balance from one month to the next. That is a charge card. So let’s talk
about the limits on each of those two cards. All credit cards have a credit
limit. All charge cards have a credit limit albeit an unpublished number, and some charge card issuers may argue that that’s not actually true, but
nobody has a charge card or any form of plastic that has absolute, unlimited buying power where you could go out and buy houses and airplanes and things that are millions and millions of
dollars. That just simply is not a possibility. Credit limits are published for credit
cards, and so if you have a credit card which you probably do, you can either look on your statement, you can call the issuer or you can log into the account online
and see very quickly what the credit limit is. Most credit limits on credit
cards are going to range from anything at $30,000 and below, and it’s going to vary. People who have either poor credit, or very young credit, they may have credit cards with 1,000, 2,000, $5,000 limits. People who have had credit for a longer period of time and who have a lot of experience managing credit cards,
those folks are generally rewarded with much higher credit limits: 20,000, 25,000, I have one that’s 35,000. I don’t ever use the card, but I still have this behemoth
credit limit if I ever chose to do so. Charge cards; different story. These do
not have a published, pre-set spending limit or credit limit, so there’s nothing
that you’re going to get on your statement, or when you call and ask them, or when you log into the account online that says “Hey John, your limit on this particular card is
20 or 30,000.” Charge cards generally have what’s referred to as
a “shadow limit,” which means that the issuer knows how much they’re going to
allow you to spend on that card, but they’re not actually going to publish
that. So you can try to use it 10, 15, 20, 30, 40 grand if you’re, for example, a small-business owner and you run all your expenses through it, but you’re going to eventually get to a point where they’re going to tell you “no more.” And they may actually tell you this
proactively, or they may just decline to allow the transactions to complete at
the point of sale or at the register and then you’ll know that you’ve essentially
maxed out the card. Now, one of the follow-ups to the question was “how does this appear on credit reports and how does this affect my score?” Very important
question. Credit limits are reported to the credit
reporting agencies by the issuing bank and it plays a part in a very important
metric called the “debt-to-limit ratio” or the “revolving utilization ratio” and
essentially what that is it’s the relationship between the balances on
your credit cards and the credit limit on the credit report. And you
probably are assuming that it’s better to have a low ratio, which is going to be
completely accurate, so you want low balances relative to the credit limits,
which means you want really high credit limits and really low balances because
that’s going to help to buoy your score. If you have a charge card and
the charge card reports to the credit rating agencies no credit limit, because
there isn’t one, if the credit limit is missing and there is no historical
information about the highest balance you’ve ever had the card, then that particular card is not
going to be considered in any of the newer scoring systems when calculating
that debt ratio-to-limit ratio. And that can either help you, or it could hurt you. It can help you in the scenario where your charge card is maxed out, because it’s not going to be counted against you, but it can also hurt you if your charge card has a very very low balance
relative to whatever the historical highest balance or the “shadow limit” happens to be, so it’s really a crap shoot. What is factual, and what you can
count on every single time, is that you’re going to want to keep the balances on those cards as low as you possibly can and pay them off as quickly as you possibly can.
What some people do, actually, as a strategy, is they’ll actually log into the
account before the statement even shows up, and they’ll pay the account off before the statement is even generated. That’s fantastic because it keeps the balance all the credit report.
So it’s a great way to help buoy your score, kind of an interesting little strategy that
not too many people know about, so we’ll just keep that between the two of us. If you
have any questions pertaining to credit or financial topics, please submit them
to Credit Card Insider, or in the comments section below. Thanks for
watching, and have a nice day.

13 comments on “Do Credit Cards and Charge Cards Have A Maximum Credit Limit? – Credit Card Insider”

  1. JesusJanica says:

    I'm glad that I found this channel! All of your videos are informative, and they've really helped me out, so thanks and keep up the great work 🙂

  2. lidsman22 says:

    I have a question. I went on Credit Karma and was messing around with the this thing they have on there were you can pick different things and see what would happen to your score if you were to like miss a payment or add a card. When I hit add a card my score went up. My question is I just got 2 new cards about 6 months ago and 9 months ago or so. How many cards should one person have and with getting 2 new cards so close together am I likely to get the card and is it worth it to add 5 pts to my score? Thanks!

  3. Brandon Rebuck says:

    If you have a card with an annual fee do you still have to use it to keep it active?

  4. Ryan V says:

    I noticed you told people a trick was to pay off the card before the statement was sent out, as that's usually the balance sent to the report agencies; but, there is a caveat to that in which you don't want to pay off the entire balance, instead one should pay only a portion of the balance. I usually try to make a payment before my statement closes which will bring my balances down to about 1-10% utilization and whatever remaining statement balance was left over from the month prior. This allows me to hold the funds longer in other investment accounts and continue making my money work for me until I need to pay down the balances of my revolving accounts. If people always pay their balance off before the statement closes then they will adversely affect their score by showing no utilization on their history.

  5. Mark Santucci says:

    if you have an open credit card like the green, gold or the platinum since they have annual fees you don't have to use it , it will stay open.

    same thing with a revolving credit card if the card has an annual fee you don't have to use it will stay open.

  6. Mark Santucci says:

    I have a question like what John was saying in the video all credit cards and charge accounts have credit limits, everybody has different limits. We'll take John's example as it is a great choice The Green card which is an open card, as he was saying you can't purchase houses , airplanes , depending upon the person you can't buy items in Bergdorf Goodman's or Tiffney's depending upon the person Yes Donald Trump, Derek Jeter , Oprah , Janet Jackson can but the average person can't.

    as John Metioned on our credit report's it doesn't list our minimum balance or credit limit.

    so let's say for example somebody who works for a company and travels on company business, the company pays for all his travel expenses what do you think his or her credit limit would be?

  7. Mark Santucci says:

    I don't know if this question belongs on this topic or 1 of your other video's.

    If I have let's say a 5,000 dollar limit , I spend 2,000 and always pay that bill in full and on time. I keep using 50% of my credit do I get a better credit score or does my credit score go down because shouldn't everybody be treated the same? would it go down using 50 to 60%? if somebody has a 5,000 credit limit they spend 400.00 and they pay let's say 200.00 and the interest rate is 15.4% what happens to that score they have better score because they have money that they still owe or there score goes down because they didn't pay the entire balance in full?

  8. Ivy Agnes Nguyen says:

    Are there any advantages to having a charge card a la AMEX Green/Gold/Platinum? What if the annual fee is exactly the same (I think some of the AMEX products are this way)? Does someone need really good credit like north of 720 FICO to get a charge card?

  9. Mark Santucci says:

    first of all 314  Doogie   it's  not  a  charge card  it's  an open credit card don't believe me  look at  your  credit report and look under type of loan  and  tell me  what it says?  it  should  say open credit card,  NOT  CHARGE card  but  OPEN CREDIT card.
    I  had  a green card that's how I know.

    second  of  all  they  have  wonderful benefits  if you travel  ,    I  guess it  depends upon the person  I  particuly like  those cards.   I  like  the Green and  original gold.  the  platinum card is  for perks,  not  just people who travel on business,  but  just travel in general.

  10. chachee15 says:

    I called my cards and asked to have y limit raised. I got my best buy card from 400 to 3000. I got a visa card from 3000 to 5000. these were hard checks so hopefully it was worth it. I have about 5000 of debt and that includes my motorcycle.

  11. alexis lefortune says:

    Fantastic information about this subject. Im glad I stumbled upon your site tonight and I have subscribed !

  12. Yhcslccshyyf Dcfcl says:

    I buy my son an Lego set

  13. Julio C says:

    Does it improve your credit score by getting a charge card if you already have a good credit score?
    I believe the nee system is different where the highest balance gets reported every time?

    Thank you

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