How Is My Credit Card Limit Determined?

How Is My Credit Card Limit Determined?

June 17, 2015         Written By Bill Hardekopf

Credit card limits are determined by a variety of factors. Credit card companies are not going to put themselves in a position where they are likely to lose money. Every decision the company makes is based on a customer’s potential risk factor. That’s why your interest rate goes up when you miss a payment, and that’s the reason credit limits can go up and down based on how your payment history. If you have had your credit card for a significant amount of time, and your payment history is pristine, you might be rewarded with a higher credit limit. If your annual income increases, you also might receive a higher credit limit. But if you are late with payments, credit card companies might deem you an unreliable customer and lower your limit without you knowing it. These factors will help you understand your credit card limit and how it is determined.

Credit Score

Your credit score is the numerical figure that shows how creditworthy you are. Credit card companies, banks and loan providers all check customers’ credit scores before issuing products and financial services. Credit scores are comprised of many different factors, including your debt utilization rate, on-time payment history, age of credit history, total number of accounts, number of hard credit inquiries and number of derogatory marks. Your credit utilization rate refers to the overall percentage of credit limits you are using—typically, when you use a lower percentage, your credit score is higher. On-time payment history refers to your ability to pay your bills on time. The age of your credit history refers to how long you’ve been building a credit history. The total number of accounts shows how many accounts you have open on your credit report—which could include not only your credit cards, but mortgages, student loans, auto loans and other bills. Hard credit inquiries show how many times you apply for credit—and lenders believe that too many inquiries may signal that you are desperate for credit. Derogatory marks are tantamount to unpaid bills. They can manifest themselves as bankruptcies, tax liens, bills in collection and civil judgments. Just one derogatory mark can significantly decrease your credit score. All of these factors directly affect your credit score, and thus your ability to get credit, both now and in the future. They also affect your credit card limit, and the willingness of credit card companies and lenders to make cash available to you.

Annual Income

Credit card companies will consider your annual income when determining your credit card limit. The lender will want to know if you have the income to cover the expenses that you may incur on the card. Most credit card companies have tiers of credit lines depending on how much you make. The exception to this is a stay-at-home parent who now has the opportunity to apply for credit based on the partner’s income.

Repayment History

Once you’ve been issued your credit card, your credit limit can still change. Your credit card limit can and likely will move up or down based on how you’ve been making repayments. If you are making your repayments on a timely and regular basis, then in time you might see your credit limit increase. If you’ve missed payments or aren’t charging much to your card, the credit card company likely won’t see any benefit in increasing your credit limit unless your annual income increases substantially. You’ll want to make sure you stay on track and make your payments on time so you avoid having your credit limit slashed.

The Credit-Based Limit

The credit-based limit is a particular method from which credit card companies derive your creditworthiness. It is based on a sliding scale. For example, if you apply for a credit card with a credit limit between $5,000 and $10,000, you might find that individuals with higher credit scores will get access to the $10,000 limit while those with lower scores will be provided with the $5,000 limit. Credit card companies use these formulas to quickly determine who qualifies for a particular amount of credit without scouring through all of the details. However, credit card companies can make exceptions if they choose. Individuals who have been using the credit card company for a significant period of time might get access to higher credit limits than if they did not have a prior relationship with the company.

The Customized Limit

The customized limit is similar to the credit-based limit in that it is a formula designed to allow credit card companies to determine your credit limit. However, it is more detailed. The customized limit considers a number of variables, including your credit score, bankruptcy score, income to debt ratios, and even limits on other credit cards. What credit card companies choose to include in their customized limit formula is up to them, as there is no set industry standard to choose from when deciding a customer’s creditworthiness.

As you can see, there are a host of variables that go into determining the credit limit of a credit card applicant. Many times, it depends on the discretion of the credit card company. These companies are looking to make a profit, and thus, they may not offer a high credit limit unless you first prove your credit worthiness, with on time payments and a solid credit history. Credit limits can sometimes be a critical factor in deciding which credit card to choose, so make sure you do your homework first and find out which credit cards have the kind of limit you need.

The information contained within this article was accurate as of June 17, 2015. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.


About Bill Hardekopf

Bill Hardekopf is the CEO of and covers the credit card industry from all perspectives. Bill has been involved with personal finance for over 15 years. He is a frequent contributor to Forbes, The Street and The Christian Science Monitor.
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