How are Credit Limits Computed for Individual Cardholders?

Have you ever wondered just how your lending institution computed your credit card limit? Or what you can do to convince them to raise it? The answers are a little more complicated than you might think.

The fact is that most consumers have, at one time or another, wondered just how their credit card company decided what their individual credit limit should be set at. It can also be puzzling if you discover that your limit is different to that of someone who makes the same kind of money as you do and carries very similar debts.

The fact is that there are no “standard” credit limits that apply to everyone. Instead, banks and other lending institutions examine each individual application for a credit card and base their credit limit decision after looking at several different factors.

What do Credit Card Companies Look at When Setting Individual Credit Limits?

There are three things that credit companies primarily look at to determine an individual’s credit limit:

Personal income

When you apply for credit cards how much you earn is one of the factors that determines what your eventual credit limit, but not the only one. However, in theory at least, the amount you bring home every paycheque should be a good indicator of how much you can realistically afford to repay on your credit cards every month. Usually, the higher your income, the higher your credit limit will be set.

Credit History

The information contained in your personal credit file will not only help determine what the limit on your credit card will be set at but also whether you are actually approved for one at all. The more delinquencies credit card companies see the less likely they are to grant higher credit limits, even if they do decide to a take a risk and issue you a credit card.

Types of credit cards

Credit card companies usually offer several different types of credit cards, each with a different maximum credit limit. However, this really only applies to higher limit credit cards designed for those with larger incomes.

Your Credit Limit is Determined by You

Although the issuer makes the final decision, in many ways you determine how high or low the limits on your credit cards are set. You are the only person who can increase your earning potential and the only person responsible for the payment history documented in your credit file.

You are also the person who decides which credit card you want to apply for. Checking all of the requirements, including the minimum income requirements, and making sure you meet them can mean you avoid the disappointment of being turned down for a credit card you never had a chance of qualifying for in the first place.

Persuading Your Credit Card Company to Raise Your Credit Limit

You have had your credit card for a while and have been keeping up with the payments every month. Isn’t it time your credit limit was increased? Some issuers will do this ‘automatically, but most don’t; it is often up to you to get them to consider doing so.

The same factors that were taken into consideration when you first got your card will once again come into play when you are requesting a credit limit increase. This time though the payment history you have demonstrated since you have had the card will be important as well. For example, if you’ve paid on time every month, but only paid the minimum balance due every time then your chances of getting a significant limit raise may be slim.

Occasionally, in order to secure a higher credit limit, you will have to “upgrade” the type of credit card you hold. It may be that you have reached the highest credit limit that is available on the standard credit card you have and are now eligible for an upgrade to a gold card or another similar type of higher limit credit card.

Should You Even Ask for a Credit Line Raise?

Before you even ask for a credit line raise stop and ask yourself, do I really need it? Your credit card, if you are using it wisely, is building up your credit score and access to a higher limit is a big temptation to overspend for even very responsible folks.