The purpose of a credit card is to allow a company to “credit” you a loan for a certain period of time. Along with this credit card comes the “credit limit” How is the credit limit determined? Follow us through this article as we explain.

The first thing that you usually need to do is find the credit card that you want to apply for. From here, you’re going to have to be accepted from the credit company itself. This is probably the toughest part out of all the steps. Previous credit, debt to income ratio, and other factors determine if you will be accepted or not.

Once you’re accepted to the credit card program, the company then has to determine how much money they are going to let you carry. This is called the credit limit. This number can raise or lower over time depending on how you use your card. If you tend to pay your bill off on time EVERY time, most likely you will receive a nice increase. If you fail to do this, your credit limit may drop and your APR may even increase.

Let’s look at what credit card companies look at when determining your credit limit.

Your monthly income - This is probably the biggest one. They want to see exactly how much you make to see what limit is right for you. They don’t want to give you a $3,000 limit if you only make $300/month.

Your current debt – These debts usually include car loans, student loans, mortgages, and other credit card bills. The more debt you have, the more hesitant the companies will be in giving you more of a limit. The less debt you have, the higher your credit limit will be.

Length of your residency – This may not seem like a big one but companies want to make sure you’re not jumping from one place to another every other month. This may raise red flags because most likely you’re either being evicted or you can’t afford to pay your rent payment. Now of course, you may move because of job purposes, etc but companies tend to like you to stay at your residence for more than a year.

Other credit cards you own – The more credit cards you own, the less likely you’re going to be approved for a high limit. This is because you have access to all of this credit and nothing can stop you from building it up and declaring bankruptcy. Banks are very careful when it comes to how many credit cards you own.

These four points are probably the most important factors when coming down to determining your credit limit. The more money you make, the higher your credit limit is, and it’s that simple. To ensure you receive the highest limit possible, you will want a nice income, NO debt, and a decent length at your current residence, and a very limited amount of credit cards.