How a Credit Limit is Determined
If you have a credit card you will nearly always have a credit limit or a maximum amount you can spend on that line of credit.
What determines your limit?
When taking out a credit card or line of credit, the creditors will offer you a set amount of money you can spend.
According to Experian, this will be determined by your current income and expenditures, your credit history, your credit score, your history with the lender, and the economic climate.
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Lenders will look at how much credit you already have with other banks and how you are handling your credit balances. They will also look at your income and if you can afford to make the minimum monthly payments.
Credit or FICO scores are another factor in lenders deciding credit limits. If you are using your credit to near its limit, this can have a negative effect on your credit score due to a high utilization ratio, according to Experian.
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Lenders may also give you a lower limit if you miss payments, take on more debt, or don’t use an account often enough. They can also increase a limit if you have a credit score improvement or bills are paid regularly on time.
If you go over your credit limit, your creditor may impose an over-limit fee. The amount of this fee can be found in your cardholders or account agreement.
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