How Does a High-Limit Credit Card Work?

How Does a High-Limit Credit Card Work?

High Limits for Excellent Credit

Having a high-limit credit card does not mean having a credit card with a few thousand dollars as a credit limit. While this amount is certainly much higher than the typical limit offered to cardholders with bad credit, a credit card with a high credit limit falls into a category of cards that have limits in five or six figures. Not everyone qualifies for a card with a credit limit of $50,000 or $100,000, but those cardholders who do have these limits fall into one of two categories. Either they have excellent credit histories and a definite ability to repay the payments in a timely manner, or they have business credit cards for a business that has a proven track record of substantial profit and debt repayment.

High Balance Equals High Interest

Why do credit card companies offer such high limits to select cardholders? The risk is relatively high, considering the vast amount of money that can be charged onto a single high-limit credit card. Lenders offer these cards because their hope is that the cardholders will charge up the card and carry a balance, thereby making a hefty profit for the creditor. Even if the interest rate for the card is low--as is the case with most high-limit credit cards--the higher the balance carried, the more interest the creditor receives. Even though there is a real potential for loss, there is also a real potential for profit. Credit card companies also realize that many people simply want the status that accompanies a high-limit credit card.

Balances Increased or Reduced

Just because a credit card is issued with a high limit does not mean the limit will remain high indefinitely. Credit card companies often adjust the limits of cardholders up or down according to several different factors. Is the cardholder making timely payments? Increase the limit of the card. Is the cardholder maxed out with other credit cards? Decrease the limit. A credit limit is always subject to change, especially when a cardholder's financial situation changes after having received the card. In most cases, cardholders with high limits will keep their high limits as long as they make timely payments and maintain a high credit score.