Among the many things that prospective credit card owners are keen on knowing is the credit card limit they will be able to enjoy.
The credit card limit is the amount of money you are actually able to utilize as credit on your credit cards.
There are many factors that go into determining this credit card limit. In this article, we will delve into 5 such critical factors.
Income level definitely plays a very important part in determining the credit limit. In your application for the desired credit card, you will clearly state your income level, along with proof that substantiates your claim.
Based on adequate checks on the part of the income, a suitable credit limit will be arrived at. Of course, this is not the only factor that determines your credit card limit, but it certainly forms a pivotal part.
Therefore, while applying for a new credit card, make sure that you check eligibility for it, with respect to your income level.
Related to the above point is the aspect of the credit card bracket. This implies a particular type of credit card that automatically comes with a certain credit limit.
Banks typically offer a wide variety of credit cards that cater to a disparate range of customers. Depending on factors such as income level or the relationship the customer enjoys with the bank, a particular credit card is offered (or the customer is automatically eligible for).
Each card on offer not only has a particular credit card limit; it also has its unique set of benefits. In cases where customers qualify for a wide range of cards, it is left to their discretion to choose the card they would like to opt for.
Therefore, this is a factor where the credit card limit is more or less predetermined, based on the card(s) that customers qualify for.
Debt to Income Ratio
What if we told you that in spite of a high income, you may qualify only for a limited credit card limit? Yes, that could happen in situations where you have a high debt to income ratio. While you have a high income, you also have a correspondingly high level of debt.
Remember that credit card debt is only a part of the overall debt scenario, and banks will assess your position based on your overall debt picture. An excellent example will be a mortgage on your property; if a major chunk of your “high income” goes into paying the mortgage on your home, then your bank will take that into consideration and possibly deem you fit for a relatively lower credit card limit.
Credit History – Critical to Determining Credit Card Limit
Your credit history is an absolutely vital determinant of your credit card limit. Anytime you are being considered for a new credit card, your past credit record will definitely be looked into.
For instance, consider the following.
- Did you pay your credit card bills on time?
- Were there excessive late payments in your records?
- Are there credit cards as well as other kinds of debts where you proved to be an outright delinquent?
- Do you have a history of defaulting on payments?
All these (and more) factors will be looked into very closely before determining your credit limit.
Also bear in mind that if past transgressions have been way too severe, there is every chance that you may even be denied a credit card altogether; forget about the card spend limit that you may enjoy!
Banks especially look closely at the credit limit that was given to you on other credit cards that you had. All too often, if you had a particular credit limit on other cards that remained unchanged for long, any new credit card given to you by a different bank would quite likely come up with a credit limit around the same amount that you had previously.
Therefore, to have expectations of say 10x the credit limit you enjoyed on previous cards when there are no grounds to justify such a quantum jump in credit limit is simply being unrealistic!
Secured Credit Cards with Self-Determined Credit Card Limit
A rather unique scenario is that of secured credit cards, wherein you can yourself determine the credit card limit that will be assigned to you. These credit cards are referred to as “secured” ones because they are secured against an amount deposited with the bank.
For example, if you deposit $5,000 with the bank, you could be assigned a credit card with a credit limit of $5,000.
It is not necessary that the two amounts are always an exact match; things vary as per bank policy. Some banks, for instance, assign a credit limit that is proportionately lower than the amount deposited with it. In the above instance, for example, a credit card with a $4,000 credit limit may be assigned, instead of $5,000. It’s an 80% credit limit to deposit ratio.
Another downside to this entire arrangement is that you will have no access to the deposit you make with the bank, against which the credit card has been assigned to you. After all, it is the deposit that deems your credit card to be “secure”. As long as you have the credit card on you, that deposit will completely be at the bank’s discretion, as security against your credit card spends.
Yet for folks with no credit history or perhaps a rather chequered one to the extent that most banks are hesitant to hand out credit cards to them, this is one of the easiest ways by which they can get a credit card for themselves.
As you can see above, there are a number of factors that ultimately go into determining your credit card limit. Take into consideration the factors that apply in your case and possibly work on them in suitable ways, if you are keen on increasing the card spend limit available to you at the moment.