Nearly every credit card in the world has a maximum limit. This is the total amount that the consumer can spend. Many people do not realize the ins and outs of credit cards when they apply for one. Creditors can determine both the maximum limit as well as the interest rate that applies to the balance. There is a chance that the consumer may face a balance that is more than their limit. This usually occurs when they spend up to their total amount, and the then adds interest to the balance. Those thinking about applying for a new card can find out how banks determine their limits.
Credit Score
The biggest factor that determines their limit is their score. A score in the 600-range is fair, while those under 600 are bad or poor. People with a good or excellent score in the 700 to 800 range usually qualify for a bigger limit. They have a history of paying back the money they borrowed and making their payments on time. People with an even lower score may need to consider secured cards. These cards ask them to send money and base their limits on how much money they added.
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Income and Debt
Creditors base a user’s credit card limit on their income and how it relates to their total debt. Every card company has a risk when they grant a user a card because they don’t know if that person will ever pay back the money they spend. People who have a high ratio of debt to their total income pose a bigger risk than those who have a lower debt to income ratio. This ratio can also determine the interest rate they pay.
Creditor History
Another factor that determines an individual’s limit is the history they have with the creditor. often increase a line of credit when the consumer has a long history of making payments on time or paying more than the minimum amount due. As the professionals at SoFi point out, “If you have an existing positive relationship with the card issuer, it may help you to get approved for a higher limit.” They also increase the limit when someone pays off their card because they don’t want to risk the person closing the account. An individual who has an existing card and wants more money to spend can contact the company and request an increase.
Average Credit Limit
SoFi found that the average credit limit in the United States is more than $30,000. Not everyone has such a high limit, though. There are many people who have cards with a limit of $500 or as low as $250. As they improve their and build a strong history with the company, they can increase their limit. often increase limits among those who change jobs or see their average earnings increase, too.
Credit cards have limits that tell users how much money they can put on their cards. Banks determine the limit based on factors that include the individual’s score, history with the bank, and their debt to income ratio.
