You may not be asking for more credit—but your bank’s systems could be giving it to you anyway. New research from King’s Business School and the Federal Reserve Board suggests that a largely unseen force may be pushing household balances higher: bank-initiated credit-limit increases.
In their study, the researchers that roughly four in five credit-limit increases in the United States are initiated by banks, rather than requested by consumers.
According to the researchers, these automatic increases account for more than $40 billion in additional available credit every quarter, with most of it extended to customers who already carry balances.
Even though they did not actually request an increase, borrowers largely end up using the extra credit. The paper found that revolving balances rise by around 30 percent following these limit increases, indicating that algorithmic decision-making has become “a major but largely hidden driver of household debt.”
Limits Rise for Those Who Already Owe
The researchers also report that banks are significantly more likely to raise limits for borrowers who already owe money.
Around one-third of all unpaid credit-card balances in the U.S. exist only because of credit-limit increases made after the card was opened, the study says. Among borrowers with lower credit scores, that figure rises to 60 percent.
The Technology Behind The Rise
As more Americans find themselves in credit card debt, the new study finds a link between new AI algorithms and increased credit borrowing.
“Banks are using increasingly sophisticated models to predict which customers will borrow more if their limit is raised. For many, that means an automatic increase they never asked for and may not fully understand,” professor Agnes Kovacs, paper author and senior lecturer in economics at King’s Business School, said in a statement.
Automatic limit increases can give people a temporary cushion—helping them cover bills or unexpected costs when cash is tight—but the researchers warn that when algorithms target borrowers already in debt, the result is often higher borrowing and greater financial vulnerability.
How Increases Lead to More Spending
Debt rises only when customers use extra credit, but previous research shows that limit increases often change the behavior of consumers, even if they are not asking for more credit or in need of it.
In a 2022 paper published in the American Economic Review, researcher Deniz Aydin conducted a large field experiment testing how borrowers respond when credit limits increase.
He found borrowers who received randomly assigned credit line expansions went on to borrow and spend more over time, not just park the extra capacity “in case of emergency.”
The new paper highlights a similar pattern in today’s credit-card market. When banks’ systems raise a customer’s limit, balances don’t just stay flat.
Utilization falls immediately because the limit is bigger, but then it gradually rebounds as borrowers build up revolving balances over the following months—even in groups that were not heavily using their credit beforehand.
The authors also show lenders are more likely to initiate limit increases for people who already revolve, making it more likely that the extra borrowing capacity gets used rather than sitting untouched.
How This Compares Worldwide
Using a model of household spending and borrowing, the authors tested policy approaches used elsewhere—such as the United Kingdom’s limits on raising credit lines for indebted customers without consent and Canada’s requirement that banks obtain consumer consent for any credit-limit increase.
They found that adopting comparable safeguards in the U.S. would improve overall consumer welfare by around one percent and reduce revolving debt balances and the share of income going toward interest payments, with only a modest effect on credit availability.
“Our model suggests that modest regulation, such as requiring consent or limiting increases for indebted customers, could improve welfare for many households while only slightly restricting access to credit. It’s an example of how well-designed policy can guide the use of data-driven decision-making in finance,” Kovacs said.
Newsweek reached out to Agnes Kovacs via email for comment.
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References
Aydin, D. (2022). Consumption Response to Credit Expansions: Evidence from Experimental Assignment of 45,307 Credit Lines. American Economic Review, 112(1), 1–40. https://doi.org/10.1257/aer.20191178
Bord, V. M., Kovacs, A., & Moran, P. (2025). Automated Credit Limit Increases and Consumer Welfare. Finance and Economics Discussion Series, 2025-088. https://doi.org/10.17016/feds.2025.088
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