What does the size of your credit line say about you? Have you ever wondered how the credit card companies determine how worthy you are when they are figuring out the size of your credit line? Credit card issuers look at a few common factors to calculate your credit limit, including your borrowing and repayment history.
They may also look at the limit on your other credit cards, the state of the economy, and whether or not you are already a customer.
The following factors determine the size of your credit line:
Your Credit Score is a three-digit number used to assess your risk as a borrower. You will be categorized as poor, fair, good or excellent. It is calculated based on the information in your credit report and is then used by card issuers to help them determine your credit line. Your credit score is also used in calculating your interest rate.
As a general rule, the higher your credit score, the higher credit line you may be offered. This is because consumers with higher credit scores typically have a history of paying bills on time and keeping their debt-to-credit ratio low.
Your Personal Or Household Income is required on the application, basically because they want to know that you have the means to pay back the money you borrowed on the card.
Debt-To-Income Ratio is the percentage of your gross monthly income that goes towards your debt payments. The size of your credit line is determined by this ratio because if you have a high income and tons of debt, you may not be given a high credit limit by the credit card lender. The card issuer may feel that you could have issues paying off your balance or making payments on your card.
Repayment History lets the card issuer know how often you have made on-time payments on your debts. The closer this number is to 100%, the higher your credit score will be, and the larger the size of your credit line.
How Much Outstanding Credit You Have or the total number of accounts you have open. The accounts include credit cards, auto loans, personal loans, mortgages, and student loans. Credit lenders want to see that you have been responsible with your other lines of credit which will help them to set the size of your credit line.
Don’t worry if you have been given a low credit limit to start. Your credit limit is not set in stone. As a customer, you will be re-evaluated by your credit card issuer roughly every six months. If you have shown yourself to be a responsible card owner, your issuer may decide to increase your limit.
Moreover, if you have missed a payment or made some late payments, your issuer may find it necessary to decrease your credit limit. It is important to maintain an excellent credit score. You will benefit with lower interest rates, more credit approvals, and the size of your credit line will be greater.