September 23rd, 2008
How A Credit Card Limit Is Determined
On our credit card offers, there are several discussions about how credit limits are set. Although its been almost 10 years since I worked at one, I can share my personal experience with how credit card companies underwrite and determine credit limits.
The two main factors in the credit approval and credit limit determination were credit score and gross annual income. Based on those two factors, my old company would determine if you were approved and what your credit limit would be. Illustrative example below:
Realistically, it was a bit more complicated than just this chart. We had dozens of these charts based age of credit and many other factors. But at the heart of the underwriting was your credit score and income.
When it comes to increasing your credit line on an existing card, the same metrics apply. In addition, credit card companies will then employ a custom score specific to that company. That custom score was called a behavior score in my credit days and it was specific to how you interacted with that specific credit card company. That is, were you ever late, do you use the card for cash advances, do you pay your account off in full, etc.
The best way to increase your credit limit was to call in and request one. At the time, we had automatic credit line increase procedures but if you think about the sample matrix, a key factor is your income. Many people don’t know this but banks rely on your self reported income. So in the automatic process, we never knew if you got a raise or new job. When you call in they will often ask if your income has change.
Now my disclaimer, all of my experiences are from 10 years ago. I’m sure the industry has changed. But I hope this help users a bit when they think through credit scores, credit cards, and credit limits.
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I really did not know about it. Thanks a lot for the post. Hope We will get such informative posts in future too.
the credit score and the gross annual income both are vital to determine the credit card limits. But are there any there parameters to determine the credit card limits?
this Really help. I did not know about it. If my annal income is low then my credit limit will also be lower?
Cool article you got here. It would be great to read a bit more concerning this matter. Thanks for posting that data.
It was certainly interesting for me to read that article. Thanks for it. I like such themes and anything that is connected to them. I would like to read more soon.
Truly yours
Thanks for an insider words. Can you tell us if you worked in a regional/local bank or one of the major commercial bank? I guess there may be a different criteria regarding credit increase.
Anyway, some of my credit card companies have recently drop the automatic credit increase practice and the instant credit increase upon customers request (without waiting a few days for their credit department to review your credit profile) according to the customer reps.
Thanks for give a information about credit card limits.
Thank you.
This is indeed a good piece of informations – more please
In this blog ‘How A Credit Card Limit Is Determined’ well said that credit scores in the credit report and gross annual income will effect the credit card limit. Pay more than your monthly minimum balance also increase credit card limit.
I think the most revealing part of your article is that outcome of your credit limit (aside from credit score) is based on self-reported income. Some applicants are honest, but others could lie as well.
Why do some people have a higher credit limit then their income?
for example I know someone who has an income of $15,000 but credit limit of $228,000 annually. Is it because of previous income? What income would you need for that to occur.
Hi Bob! It could be a combination of factors: previous income, joint credit cards, co-signers, etc. It’s hard to say. But I’d say that person is swimming in dangerous water. Hopefully, he uses his credit wisely and NOT as additional income, because that’s not what it is. Your credit limit should be manageable. A bigger credit limit doesn’t mean you have a higher credit rating.
Thanks very much. Have read over eight 2010 and 2011 published books on credit in last three months as well as much online from credit sites and financial articles. None has shared this type of data. You do us all a great service and are much appreciated. May all feel free and enlivened.
And special thanks to CreditKarma for an awesome site with a wealth of valuable information much of which guided me in just securing three new credit cards. Many, many thanks.
Am maintaining overall credit limit while moving balance from opted-out card and lowering interest rates through both initial special offers and eventual interest rate levels.
Thanks for giving me gumption and courage through arming me with critical information on my rating and credit cards. All the best!
A good thing to note is that there are over 1000 systems to determine your credit score. However FICO is the outstanding leader in the field,
I think this website is totally awesome. So much info to help those that need it. I have watched my score come up a good 100 points, which makes me very happy. I am now ready to apply for a home loan. Can’t thank you enough.
That’s great to hear, Cindy! Awesome job building your credit.