Credit Limit: This Is How Your Credit Card Limit is Determined

Wanna know how your credit limit is measured and determined before you can get that loan or financial aid approved? We wrote a definitive guide that detailed all the process you should follow.

While the credit limit a card issuer sets is in fact an indication of its faith in your ability to repay the loan, it shouldn’t be looked upon as a measurement of your worth as a human being.

After all, given a choice between doing the right thing and the wrong thing, most people do choose to the right thing—first.

Seriously though, while the exact algorithms governing how your credit limit is determined vary from lender to lender, the clues they use are all pretty much the same.

How Your Credit Card Limit is Determined

Your Income

The more money you make, the more you can afford to repay—or so the logic goes. Thus, people with higher incomes tend to have higher credit limits. Well, that is up to a point. As you’ll see below, there is another rather significant issue that comes into play around your income.

What You Owe vs. What You Make

Also known as your debt to income ratio, this factor could find you saddled with a lower credit limit than someone with a much smaller income—assuming they also have no bills. The more you keep of what you make (the lower your debt to income ratio), the more risk a lender is willing to take on your behalf.

How You Handle Debt

A quick glance at your credit report is all experienced loan professionals need to determine whether you’ll qualify. If your accounts are paid on time and have low balances—or paid in full with no hiccups, you’ll find yourself getting a pretty nice credit limit—assuming your income will support it. On the other hand, late payments, high outstanding balances, and other negative credit-related information will depress your limit.

Your Credit Score

The factors above are typically combined to determine your overall credit score. If everything lines up and yours is high, you’ll get a larger limit than a similar applicant who has a lower credit score.

How Others Have Previously Ranked You

If you routinely get cards with five and six-figure limits, each new application you submit is likely to be responded to with yet another one—assuming all of those accounts are in good standing. However, this is only can only be true up to a point. If a lender finds itself fifth or sixth in line and your income has already been stretched with a hand of cards with high limits, they might be reluctant to follow suit.

Your Co-signer’s Situation

If you need someone to apply with you to qualify, you’ll find your credit limit will, in part, be determined by what they are considered capable of handling. After all, if things go sideways and the issuer has to go after your co-applicant, they’ll want to be certain that person has the ability to pay on your behalf.

Your Financial Problems (or Lack Thereof)

As you may have surmised, when it comes to how your credit limit is determined, problem-free people tend to get better treatment. If you’re not one of them, you should set about cleaning your house before inviting new lenders to come in and look around (so to speak).

If you have a lot of debt you can’t shake and your income isn’t keeping pace, you might consider working with a debt relief company to help you get things back on track. However, before choosing one, conduct some research along the lines of these freedom debt relief reviews to learn the nature of the company with which you’re considering working.

Hopefully now you understand how your credit limit is determined and can leverage this information to make the best choices for your financial situation.

With this article, we hope you are clear of the fact having a clean credit record is all it takes. To get that loan approved, your credit card limit has a lot to do. You must do everything to be clean to go.

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