A credit limit is the maximum amount of credit that a financial institution or other lender will extend to a debtor for a particular line of credit. In many cases it is simply the amount of credit available to you on your credit card. It is usually determined by a mixture of the following factors with varying degrees of importance:
- Your income and other personal financial details such as whether or not you own your own property or rent etc
- The state of your credit rating.
- The policy of the credit card provider.
- The type of credit card you have or are applying for – Gold and Platinum credit cards normally have higher limits than standard type cards
- Your past relationship with the provider – If you’ve always repaid at least the minimum balance, they will be more inclined to increase your limit.
Income and details held on your credit file are by far the most important. If you earn a good salary and have a clean credit rating, $5,000 would probably be the starting level if you were to apply for a new card. Generally speaking if your initial limit is $5,000 and you operate your account responsibly for a year, it is possible that your limit will be raised and then increased again the following year.
In most circumstances, the better your credit, the higher your credit limits will be. Some credit-card companies will give you a big credit limit immediately, while some more conservative companies wait a few months of on-time payments before they give you a boost.
Credit-card companies monitor your credit status constantly. Although most companies limit credit increase to once or twice a year, they could choose to give you more increases based on your credit.
The bad news about good credit is that you will continue to get credit line increase whether you can afford them or not. Many financial analysts blame the credit card companies in part to the rising debt levels among Americans. Many people have more available credit than they need or could ever repay.
Don’t forget it’s in the Credit Card providers’ best interest to force us into a manageable debt situation, which is why credit limits are often both high and increase regularly.
However if you think your limit is too high, it is possible to get it reduced. Just call your provider and ask them to reduce it, but bear in mind this may have implications on your credit status as if you are close to your credit limit you may be considered a higher risk candidate for credit than a consumer who is only using around 50% of their credit limit.
