How Can I Calculate My Potential Credit Limit
As mentioned, there is no concrete way to calculate probable credit limit, and the process to arrive at a credit limit can vary from one credit card provider to the next. Heres what card providers take into account.
- Details in your credit report like repayment history, outstanding debts, and unsuccessful applications for debt can have an impact on your credit limit.
- Income. Your credit limit, in most instances, stays in direct proportion to your income, where higher income normally translates into higher credit limits. The frequency and reliability of income can also affect your credit limit.
- The card provider. Credit card providers can offer you different credit limits even though you submit exactly the same information through their applications. If youve banked with the provider in the past, a reliable history on your part can lead to a higher than usual credit limit.
How to use an online credit limit calculator
Online credit card limit calculators can give you a vague idea of what your credit limit might look like. Unfortunately, its difficult to determine exactly what your credit limit is and you cant be entirely sure of how your credit card provider will calculate your limit. Think of them as more of a credit limit estimator.
Annual Income For Credit Card Applications: Everything You Need To Know
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Card issuers are legally obligated to ask for your income, as they can only lend you money if theyre confident you can make your payments. You can include several types of income. A higher income will generally help your approval odds and allow for higher credit limits.
I remember applying for my first credit card. I felt so official filling out all those little boxes and picturing the day my shiny new card would arrive in the mail.
Why Do You Need To Increase Your Credit Limit
Think about why you want to increase the amount you can borrow, and whether this might create the risk of you running into difficulties.
There could be many reasons for extending your credit limit for example, maybe you use your credit card to pay for work-related expenses before claiming them back.
If your typical monthly expenses suddenly grow, it might be a good idea to increase your credit limit to avoid a cash-flow problem.
If you regularly pay your credit card bill in full each month and have a consistent income, the bank or card provider might agree to the increase.
However, perhaps you want to increase your credit limit because youre struggling to meet all your outgoings, including credit repayments.
If this is the case, increasing your credit limit is only going to add to the problem and it might be helpful to seek advice before getting into more difficulties.
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How To Pick The Best First Credit Card
With the vast number of credit card options on the market, choosing the best card for your needs is important. Selecting a card with the right balance of fees and rewards can help ensure you use it for the right reasons and avoid going over your budget.
Whether youre a student or a young adult getting your first card, to understand how to choose the best credit card, its important to learn the different types of cards available.
How To Budget With A Credit Card
Budgeting with your credit card is essential to ensure responsible card use and a good credit score. After all, you dont want to end up with a mountain of debt after getting your first card. Below are a few tips in order to maintain a budget with your credit card.
Set an overall limit
You dont want to end up using most or all of your credit limit, as its recommended that you only keep your credit utilization below 30% of your actual limit. Having a limit also ensures that you dont use your credit card for all your spending.
Track your spending
Tracking your spending is an essential part of any budget. Fortunately, as most credit cards come with a mobile app or online portal, tracking your expenses has become even easier. This can help you learn your spending habits and decrease unnecessary purchases.
Avoid carrying a balance
Adjust your billing schedule
If you can choose the date of your credit card billing cycle, opt for a date that aligns with your pay period to make your payments easier. This also ensures you pay your bills on time and stay within your spending limits.
Use your rewards
If your card comes with any offers or rewards for common expenses, make use of them. This way, whatever you save can be put towards any savings, investments or debt.
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How Your Credit Limit Is Determined
Your credit limit is based on different factors like your credit score, income, debt, length of credit history, rate of application for other forms of credit and more.
Your credit score is probably the most important factor in determining your credit limit because:
- Someone with a strong credit score represents a low-risk opportunity for the bank. Theyre rewarded with a higher credit limit because theyre more likely to pay their bills on time.
- Someone with a weak credit score represents more risk for the bank. Theyll receive a lower credit limit because they may have a less consistent history of paying off debt.
Paying Late Comes At A High Cost
Missing your due date can get expensive quickly. Depending how late your payment is, you could face:
Late fees. The legal limits on these fees are adjusted annually. But generally, the first time costs well over $20, and subsequent violations can be close to $40.
Penalty APRs. Most credit cards no longer charge penalty APRs, but some do. A penalty APR kicks in when you pay late, and can increase your interest rate to 30% or more right away for new transactions. And if the payment is more than 60 days late, that penalty APR can also be applied to your outstanding balance.
Damage to your credit. Paying a day late wont hurt your credit. But if you pay 30 or more days late, your payment will also be recorded as late on your credit reports, hurting your credit scores.
Consider setting up automatic payments from your bank account. Or, if youre worried about overdrawing your account, note your due dates on a calendar as a reminder.
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Use Your Credit Card Responsibly
A credit card can make dealing with finances more rewarding and convenient, but it can be easy to get carried away. Purchases used via credit can stack up quickly, and before you know it, you may accrue more debt than you can handle. This can have long-lasting damage to your credit score and future finances.
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Benefits Of Increasing The Credit Card Limit
Now that you know how to increase your credit limit, here is why you should consider increasing your cards credit limit-
If you spend the same but have more credit available on your card, your credit utilization ratio will decrease which will improve your credit score.
Higher credit, low utilization ratio, and better credit score will improve your chances of getting loan approval in the future
Having more credit available on your card can be useful in case of emergencies such as financial or health emergencies.
Cards with higher credit usually come with perks such as premium memberships, rewards, lounge access, etc.
How Credit Limits Can Affect Your Credit Scores
We mentioned that lenders will also consider your , or the amount of money that you owe compared to the total amount of credit you have access to. A low credit utilization score is another indication that youre able to use your credit responsibly and sends a signal to prospective lenders that you might be a good candidate for their credit products if you meet other criteria. Experts generally agree that you should keep your credit utilization rate below 30% whenever possible.
So, how do you know what your credit utilization rate is? To calculate it, divide the total amount of your credit card balances by your total credit card limits.
If your credit utilization is above 30%, you may find that increasing your credit limit can give your credit scores a boost. Because if you increase your credit limit but keep your credit card usage the same, your credit utilization rate will go down. This is a good way to try to improve your credit if youre regularly holding large balances on your cards.
Of course, increasing your credit limits means that you can spend more on your cards, which could make it easier for you to overspend and wind up in debt. This will cost you money and could decrease your credit scores if your credit utilization ratio gets too high.
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How Credit Card Companies Determine Credit Limit
Eric is currently a duly licensed Independent Insurance Broker licensed in Life, Health, Property, and Casualty insurance. He has worked more than 13 years in both public and private accounting jobs and more than four years licensed as an insurance producer. His background in tax accounting has served as a solid base supporting his current book of business.
Credit card companies determine your credit limit through a complex process called underwriting, which works according to mathematical formulas, considerable testing, and analysis. Details of the procedure are protected since it’s the way that the company makes its money. The heart of the matter is that this system of computation helps the company decide who to approve, at what rate and which limit. The higher the credit limit, the more that the company indicates that it trusts a borrower to repay their debt. Here are the basic principles that issuers use to determine your credit amount.
How To Increase Your Credit Card Limit
Here’s how to increase your credit limit:
Besides your income, you may also be asked for your current monthly housing payment and the credit limit you want. It depends on the card issuer, as each one handles credit line increases a bit differently.
You should get a decision immediately. If your request was approved, then your card issuer will confirm your new credit limit. If it was denied, you’ll typically need to wait at least three to six months before you try again.
Keep in mind that most credit card companies will automatically increase your credit limit if you’re a responsible cardholder. How often this happens depends on the card issuer and your credit card activity. If you’re in no hurry, you could wait until the card issuer automatically gives you a higher limit.
Check out the video below where we take a closer look at each step to increasing your credit limit.
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If Youre Rejected For A Credit Card The Issuer Will Tell You Why
Getting rejected for a credit card is a bummer, but you can learn from it. Card issuers are required by federal law to send you an explanation for their decision, called an adverse action notice. For example, an issuer might say you were rejected because your income was too low, or you lack a credit history. This feedback could help you decide how to improve your chances for approval next time.
About the author:Claire Tsosie is an assigning editor for NerdWallet. Her work has been featured by Forbes, USA Today and The Associated Press. Read more
How To Apply For A Credit Card
Now that youâve learned what to look for when switching credit cards, youâre ready to apply!
The quickest way to do this is online , but speaking to a customer service representative over the phone can also yield benefits. Youâll be able to get answers to specific questions, and if youâre an existing customer, unlock some extra bonuses that might not be available on your bankâs website.
Typically, you should find out if youâve been approved in 5-7 days, although in some cases it may take up to 30. If youâve applied online, instant-approval cards will tell you immediately if youâve been approved, but youâll still have to wait 5-7 days for your card to arrive.
If you want to change your credit limit on a new card, you typically want to spend six months paying off your statements on time and making sure your credit utilization doesnât rise above 30%. In some cases, your bank will reach out to you with an offer to increase your limit. If not, itâs up to you. Go online, give them a call, or even walk into your local branch and request a credit limit increase of your desired amount.
One final thing to remember: make sure youâve updated any automatic payments that may still be connected to your old card. If youâre changing cards within the same provider, your credit card number will most likely stay the same, but your expiration date and CVV will change, so ensure that information is current before your next billing period.
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What Should I Do With The Low Limit Card
Certainly if you got it to shift debt to and it’s cheaper than the cards you’ve currently got, shift the debt to it up to the maximum allowed.
Going back to the email that prompted this…
“I applied online, told them I wanted an interest-free balance transfer of £3,000 and gave them the card number as requested. I got accepted OK, but with a miserable credit limit of £1,500 so no possibility of a transfer. I’ve told them what to do with their card!”
In this case, assuming the £3,000 is currently at a high rate of 18% a year, at least shifting half the debt will save you over £200 in interest over the next year. That’s not a bad start and you’ll start saving instantly.
Plus, there’s no rule that says you must balance transfer only to one card. If you have more debts to move, simply apply for another card. The only negative is that you have two cards rather than one, which may be more complex, and can affect your total minimum repayments.
Beware of over-borrowing, though. And it’s always worth checking your credit reports before applying again to ensure the low credit limit wasn’t due to an error on them.
See our for all our current top-picks and our which will show cards you’ve the best chance of getting, in your own personal best-buy table.
Request A Higher Credit Limit
If you dont want to wait for your credit card issuer to offer you a higher credit limit, you can always request one yourself. Many credit card issuers let you request credit limit increases through your online account or through the issuers mobile app. Otherwise, consumers can call their issuers themselves and ask for an increase.
When you request a higher credit limit, make sure your credit card issuer knows about any recent changes to your financial situation that might affect their decision, such as a higher annual income or a recently improved credit score.
If you have a track record of on-time payments and low balances, your credit card issuer will likely give you the increase as a good-faith gesture, Lindeen says. But dont bother calling if youve been late on paymentsand dont request a higher credit limit if your current credit limit is maxed out.
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