September 23rd, 2008

How A Credit Card Limit Is Determined

26 Comments | Twitter | |

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 off of 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, if you ever late, if you used the card for cash advances, if you paid 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 helps users a bit when they think through credit scores, credit cards, and credit limits.

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26 Comments

  1. I really did not know about it. Thanks a lot for the post. Hope We will get such informative posts in future too.

    Mortgage guy at 11:09 pm on June 1, 2009
  2. 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?

    Home loans Helper at 3:04 am on August 1, 2009
  3. this Really help. I did not know about it. If my annal income is low then my credit limit will also be lower?

    Mortgage Refinance at 11:27 am on January 10, 2010
  4. Cool article you got here. It would be great to read a bit more concerning this matter. Thanks for posting that data.

    MarkRight at 5:54 am on February 11, 2010
  5. 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

    LoveLess at 1:49 am on February 17, 2010
  6. 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.

    won won at 6:32 pm on June 19, 2010
  7. Thanks for give a information about credit card limits.
    Thank you.

    Credit Cards at 1:51 am on July 9, 2010
  8. This is indeed a good piece of informations – more please

    Makeon.com at 1:20 pm on August 18, 2010
  9. 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.

    Anonymous at 1:54 am on March 29, 2011
  10. 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.

    Sun at 2:29 am on June 6, 2011
  11. 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.

    Bob at 7:07 am on November 2, 2011
  12. 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.

    bethy at 10:05 am on November 2, 2011
  13. 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!

    Phoenixrisen at 1:33 pm on November 6, 2011
  14. 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,

    whats a good credit score at 7:24 pm on February 18, 2012
  15. 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.

    Cindycp at 11:02 am on April 7, 2012
  16. That’s great to hear, Cindy! Awesome job building your credit.

    bethy at 9:56 am on April 9, 2012
  17. how will existing credit lines affect ability to obtain new credit lines or credit line increases. Is the chart shown referring to overall credit lines offered or just what can be expected by each credit card issuer.

    brian at 10:50 am on June 2, 2012
  18. This site is awesome! I am putting it on my favorites so I can come back and study it more later. I had no idea this kind of info was available!

    Judy at 1:52 pm on July 17, 2012
  19. Are you kidding me! After all that you give us the disclaimer that these methods are over a decade old? And that you are sure the industry has changed? Hellooooooooooo!
    Can you say 2008? Can you say credit swaps unraveled? Can you say nothing is as it was even five years ago?

    Ten year old methodology? Give us a break, will ya?
    Please find someone more current to tell us what is really going into the decision TODAY!

    Is anyone with me one this?!

    ab at 9:55 am on August 1, 2012
  20. Yes, the industry has changed. But what hasn’t changed is the two KEY pieces of information that underwriters use to set credit limits: your credit score and your income level. This is covered in the video (which we created rather recently). Bottom line: The better your credit score and the higher your income, the more creditworthy you’ve proven yourself and the more cash you’ll likely have on had to pay down balances. It just makes sense.

    bethy at 10:01 am on August 1, 2012
  21. Gross Annual Income would be easy for many working people to determine, however there are many people, to include our disabled military veterans, who receive tax-free income as their only source of income. I ask my question as it pertains to credit cards below, however first I would like to share what I know about this in terms of mortgages.

    For mortgages, this income is sometimes (though not always) “grossed up”, known as “grossing up income” to determine what the persons gross income would look like since they do not pay taxes on the income they receive. When mortgage companies do this it tends to be 25% these days, though some people report they gross it up 15% (ie. $12000 becomes $15k or $13,800 respectively).

    How does this work for credit card applications when they ask for Gross Annual Income? Should a disabled applicant, or anyone else receiving tax-free income, report the actual income amount they are receiving, or should they “gross up” the income based on the tax bracket they would be in, if that income were gained through employment (and thus taxable)?

    Vic at 10:55 am on September 9, 2012
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  23. This web site truly has all of the information and facts I wanted about this subject and didn’t know who to ask.

    Ellie at 3:06 pm on March 1, 2013
  24. Great post.

    cats & dogs at 6:22 pm on April 7, 2013

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