Editorial Policy

Factors that go into setting your card's credit limit

Erica Sandberg

October 1, 2015

Q Hi Erica,

How do I know what credit limit I will get? All I see are things like regular APR, annual fee, etc. I don't see anywhere where it tells you what the credit limit is. I don't want to apply for a bunch of cards in order to find out which one has the highest credit limit. — Mike

A Dear Mike,

You'd think that credit limit information would be included in the terms listed on the initial credit card offer, wouldn't you? But no. And there's a good reason that amount is left unpublished.

The credit issuer needs to have more information about you before determining your credit line. The factors that the issuer assesses are:

Your credit score: There are a number of different credit scoring models, but all are derived from the information listed on your credit reports. The most commonly used score is the FICO.Ask Erica

The better your credit scores, the higher your credit limit is likely to be. To ensure they are in good shape, make all of your financial obligation payments on time, stay out of collections and bankruptcy court, and carry little or no debt. If you have installment loans, such as for a car, home or college education, a steadily declining balance will help your credit scores rise, even if you still owe on the loans.

Income: A credit card issuer also will need to know your income. If you earn very little, an issuer will have little confidence that you have the means to make regular payments or repay a large credit card debt. If you earn big bucks, your borrowing power should increase, as it shows you possess the ability to handle higher payments.

On the card application you'll fill out your household income. You may include a spouse's income if he or she will be contributing to the payments. Be honest about what you list as your income. The issuer won't contact employers to verify the amount of your paychecks, but if you lie and the account goes seriously delinquent or if you file for bankruptcy, the issuer can go back to the application. If they find you fraudulently stated your income, you could face legal trouble.

Current debt load: Yes, this data is embedded in your credit reports. The issuer  can look carefully at the amount you currently owe to other lenders. If your payments are substantial, your credit line may be smaller because those higher payments will show that you can't afford taking on more new debt.

From a credit issuer's perspective, the credit line it's willing to extend is all about reducing risk. For unsecured cards, an issuer has to protect the bank or card company's interests. If you run up a bill and then run out the door, recouping losses isn't easy or cheap. Collection calls cost, and even if the issuer sues you for the balance due and wins the case, the bank or card company may gain nothing if you're broke.

Don't take offense or worry if you're offered a smaller than desired credit limit initially.  You can give the issuer confidence by using the account responsibly for at least a year. That, of course, means regularly charging and paying on time and in full. This will show that you can manage a larger credit limit. If the issuer doesn't offer a credit limit increase automatically, call and point out your credit record. Sometimes you have to be your own cheerleader.

Got a question for Erica? Send her an email.

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