How Do Credit Card Issuers Determine Credit Limits?
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Credit card issuers determine your credit limit by evaluating factors like your credit score, payment history, income, credit utilization and large expenses.
By understanding what they're looking for, you can manage your credit responsibly and increase your odds of getting approved for a higher credit limit. Here's what you need to know.
Income, expenses and debt
The Card Act of 2009 requires lenders to take your “ability to pay” into account, which is why credit card applications ask for your income. Some may also ask for your monthly payment obligations such as rent and alimony.
Issuers might also analyze your debt-to-income ratio, meaning the amount of debt you have in comparison to your income. If you already have debts that chip away at a large portion of your income, a credit card issuer will be nervous about offering a high credit limit.
Credit card issuers will be more willing to grant you a decent credit limit if you have a history of paying back what you borrowed on time.
They can see your track record by looking at your credit reports provided by the three major credit bureaus (TransUnion, Equifax or Experian). These bureaus compile information, like payment history, that forms the basis of your credit scores. Your credit scores help lenders assess your credit risk when deciding whether to approve your credit card application, and your scores may also be a factor in assigning your credit limit. A higher credit score may help you qualify for a higher credit limit.
Here's a look at how credit limits compare across different credit score ranges, according to consumer credit card market report figure data by the Consumer Financial Protection Bureau:
Credit score ranges
Average credit line on new general purpose credit card accounts in 2020
Super-prime (scores of 720 or greater)
Prime (scores from 660 to 719)
Near-prime (scores from 620 to 659)
Subprime (scores from 580 to 619)
Deep subprime (scores of 579 or less)
If you have a limited credit history, it's harder for credit card issuers to evaluate you. As a result, they might be more cautious and set a low initial credit limit until you can prove that you're able to manage credit responsibly.
Issuers may look at your credit utilization, or the portion of available credit you're using. Issuers are less likely to offer a higher credit limit if you're on the verge of maxing out your credit cards.
Using less than 30% of your available credit can help protect your credit score and potentially make you eligible for a higher credit limit. If you have a lot of unused credit on other cards, the issuer may see it as a positive sign that you use credit sparingly and responsibly.
Other factors beyond your control
In addition to your own specific situation, issuers must consider numerous macroeconomic factors as well. The economy, for example, may affect a credit card issuer’s underwriting standards. When times are bad, issuers have been known to tighten cardholders’ credit limits.
Most cards have some kind of preset maximum limit, as well, so you may not always qualify for your ideal limit.
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