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How is Credit Limit Determined?

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Once you get your credit card, you know your credit limit. But how that total amount of credit limit is determined can be a bit of a mystery to some people.. If you want to know how high your credit limit might be, or the chances that you will get approved for credit, it helps to know how that is figured out in the first place..

As you may expect, the answer is not that clear cut and there is no single correct answer.. According to Bankrate, there are several different ways that the limit can be determined.

In some cases, it will be true that the card has a few different cards, and the limit for those particular cards will be the same no matter who applies for them, with no differences for qualification. For example, a gold version of the card could have something like a $5,000 limit, and everyone who qualifies for that card gets $5,000.It may not matter if they are a great candidate, or if they just passed the minimum requirement to get the card – everyone is the same.

Another method that is probably more common for credit issuers is for a card to have a range, such as from $5,000 to $7,500 for the card. Next, when someone applies for the card and gets approved, your credit score and other determining factors could set where you are within that range. This is a bit more complex than the previous paragraph, though still relatively straightforward and easy to understand.

In other scenarios or examples, the creditor might be a bit more complex for a formula for determining the limit, looking at things beyond just your credit score. In some examples, the creditor may look at things such as your income to debt ratio, your total income, or the total amount of credit that you currently have at your disposal. This will allow them to get a better picture of your finances, which can help them to set a limit that is most appropriate for you.

As you likely know just by the title of the site, just because you begin at a certain credit limit does not mean that you are always stuck to that limit. After a certain amount of time, you you can request for an increase or raising of the limit, and if you have been a trustworthy customer, you will very often have success at raising your limit.

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