A new study has revealed that most credit limit increases in the United States are initiated by banks rather than requested by customers. Many of these changes take place automatically. Algorithms predict which clients are likely to borrow more if their limit is raised — and those clients see their limits grow even if they never asked for it. As a result, households gain access to more borrowed funds and often end up carrying higher balances.
According to the Finance and Economics Discussion Series, approximately four out of five credit limit increases are initiated by banks. Each quarter, these automatic increases add more than $40 billion of available credit. Borrowers who already carry debt are the most likely to receive additional credit. Researchers estimate that roughly one-third of all unpaid credit card balances exist solely because limits were raised after a card was opened. Among borrowers with low credit scores, the share reaches 60%.
Behavioral effects play a major role. Even if customers never needed extra credit, the increase changes spending patterns. Initially, the credit utilization ratio falls because the limit grows. Yet balances soon begin to rise again, resulting in higher revolving debt. Experimental evidence shows that customers who receive random limit increases tend to borrow and spend more over time, rather than simply keeping the extra credit as a safety cushion.
Technology is the driver. Banks are increasingly relying on AI-based predictive models to identify which clients will borrow more when offered higher limits. Although extra credit may temporarily serve as a safety net during unexpected expenses, the researchers warn that when algorithms target already indebted borrowers, the result is often deeper debt and greater financial vulnerability.
Other countries take a stricter approach. In the United Kingdom, banks are restricted from raising limits for indebted customers without consent. In Canada, consent is required for all increases. The study suggests that similar protective measures in the United States could improve consumer welfare by around one percent and reduce revolving debt, while barely affecting overall credit availability.