September 23rd, 2008
How A Credit Card Limit Is Determined
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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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