A credit limit is the maximum amount that you can charge on your credit card. Credit card companies setyour limit when you apply for a card by considering several factors. For starters, they’ll look atyour credit score, which is a number that represents your entire credit history.The scoring system analyzes how you’ve repaidloans in the past and predicts yourability to pay back future loans. Companies also will look at your income, debt levels and repayment history. Another factor that comes into play is how much other outstanding credit you have available to you, such as through other credit cards.
Your credit limit may increase over time as you build a steady track record of paying your bills each month. Make sure that you keep your total charges well within your credit limit. Why? Your credit score may be affected if your balance is above the credit limit because it signals to creditors that you may be having financial difficulties and thus are a riskier borrower. Some credit card companies, however, offer electronic and/or mobile reminders to let you know when you’re nearing your limit.
Your credit card company mayraise your credit limit without you requesting them to do so. However, you may have to call your company’s customer service number to ask them for an increase. If you have ahistory of paying your bills on time, a credit card company is more likely toraise your limit to accommodateyou, though the increase may be small.This may help you avoid overextending yourself financially.A couple of important factorsa creditor considers are yourincome and your ability to repay. So not only is the amount of money you earn important but so is your debt-to-income ratio. If you were a lender, would you want to loan $4,000 to a client with $400 income and$300 debt? So, income and current debt ratio is important.
The length of residency often comes into play when establishing limits, too. If yourelocate from place to place frequently, you could be considered less stable. Lenders clearly want to see stability when establishing your credit limits.
The final major factor in granting credit is how many other credit cards you have. The more credit cards you have, the less likely creditorswill grant you a higher limit. However, if you've had the same credit card or cards fora long period of time, that would nullify the issue of having too many cards. Again, it's a reflection of your stability. A history of long term timely payments demonstrates stability.
