Credit card issuers take several things into consideration when they are determining what a client’s credit limit should be. 

People need to learn what these criteria are so that they can make sure that they are doing the things that encourage credit card issuers to approve them for credit cards and set high credit limits.

What Is a Credit Card Issuer?

A credit card issuer is a financial institution that creates credit cards, approves consumers for credit cards and ensures that these accounts run in an efficient manner. 

Therefore, the credit issuer is the entity consumers go to when they need to replace a lost credit card, make their monthly payments and check their balances.

What Is a Credit Limit?

The credit limit is the amount of money that a consumer is allowed to charge to a credit card. For example, the credit limit might be $5,000, so the consumer may make changes up to that amount and carry a balance. In most cases, credit issuers set limits between $2,000 and $10,000 for each consumer.

How Do Credit Card Issuers Determine Consumers’ Credit Limits?

Credit issuers determine consumers’ credit limits in one of the three following ways:

The Predetermined Credit Limit

Some credit limits are predetermined. A starter credit card may have a predetermined limit, and it may be $500. A premium credit card may have a predetermined limit of $5,000. According to the experts at SoFi, these card issuers do not examine their clients’ personal histories before they set these limits, so if it is a very low limit, it will not be because of the consumer’s history.

The Customized Limit

A credit issuer can also examine several variables for the purpose of creating a personalized credit limit for each consumer. When issuers do this, they minimize their risk. Therefore, they may examine the consumer’s credit scores, bankruptcy scores, debt-to-income ratio and income to set these limits. They may even set a client’s limit based on the limits that other card issuers have set for the client.

The Credit-Based Limit

In many instances, credit card issuers set credit limits based on the consumer’s credit scores. Credit scores are determined by recent inquiries, credit mix, length of credit history, credit utilization and payment history, so the credit limit will be set on all of these factors as well.

How Do You Increase Your Credit Limit?

In the beginning, consumers may not be happy with their credit limits, but they can increase them. Sometimes, the credit issuer will increase the limit, and if this doesn’t happen soon enough, consumers can ask their card issuers to increase their limits. This will give them more purchasing power, but it will also lower their credit utilization ratios.

The experts at SoFi say that the credit card issuer is important but that consumers must not neglect to consider whether or not a card offers rewards, and they must not forget to find out if the issuer is charging any fees. Some cards will suit a consumer’s needs better than others, so they must be aware of these features before they sign on the dotted line.