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4 Factors That Influence Your Credit Card Limit
Posted on Friday, December 22nd, 2017 | By IndusInd Bank
The amount of credit you are allowed, also known as the spending limit or the credit limit, is the most important aspect to look at when you apply for a credit card.
Setting the right limit is essential as it must appeal to the customer while being acceptable and comfortable for the bank.
The calculation is based primarily on your individual income and usage, but other factors such as your debt obligations and other expenses are also taken into consideration by sourcing information about your finances through the income documents submitted along with your association with outlets and brands. Though this could seem like a complicated calculation process, there are essentially just four main factors that influence the spending limit set on your credit card. These are –
1. Salary/Income
This is the most considerable factor in determining one’s credit limit., depending upon your appetite for risk. If you have multiple sources of income, disclosing all of them at the time of application would work well in your favour and the chances are that your upper limit would get pushed up sizably.
2. Credit Score
Extending credit is almost like giving a loan, so any lender would analyse your credibility before issuing you a credit card. Through your credit reports, your personal details along with all your financial dealings including bill payments, credit history and account transactions are studied by the lender. Previous borrowings and the manner in which you repaid them is closely looked at.
One of the most important bits of information in a credit report is the credit score. This has the potential to make the difference between a low credit limit and a feature loaded, high limit credit card. The higher your credit score, the greater are the chances of you being eligible for the latter. New users might not get a very high credit limit to begin with, but if the bills are paid on time, the credit score will go up and the limit would be increased soon. A
great way to ensure that your score goes up is by paying your bills on time and keeping your credit utilisation ratio below 30%.
3. Ongoing Loans/EMIs
While setting the credit limit, the amount of money that you save after your expenditures is what matters. If your bank statements suggest a good amount of savings on your total income, chances of a higher upper limit are increased.
When you have existing financial obligations, the impact of those obligations on your income and consequently on your ability to pay bills on time will be looked into. In case you are paying monthly instalments against a loan, the amount you save on your gross income is dented. However, it is the extent of this dent on your income that is assessed before issuing you the credit card. So if existing claims take up a large chunk of your income, your ability to make payments is reduced and in turn, so is the limit on your credit card. But if you ensure that your EMIs constitute a small portion of your total income, your spending limit should not be affected.
4. Your Portfolio with the Issuing Bank
The relationship value you share with a bank could go a long way in striking a good credit card deal with them. If you approach the bank in which you hold a savings account and base your application for a credit card on the frequency of transactions made through that account, chances of issuance with a good credit limit are automatically high. Even if you have availed other products from that bank, like FDs, RDs or insurance plans, there is a great likelihood of higher upper limits being sanctioned to you. It is smart, therefore, to look at applying to banks with whom you share a good relationship value.
