A credit card is a type of loan. With a credit card, the credit card company extends you a loan for the amount purchased. You are obligated to pay your balance, or you are charged interest and fees.
Having a credit card can be ideal for making larger purchases and it makes for easier online shopping.
Each credit card has a limit. This is the largest balance you can hold on your credit card at any one time.
There are various factors that are taken into account when your credit card limit is calculated, such as:
- Your monthly income
- Your employment status
- Your residential status
- The type of credit card you own
- Your payment history with the credit provider in question
How your credit card limit is calculated:
A low credit limit shows that a creditor has little trust in your ability to spend and pay. A high credit limit on the other hand, indicates that the creditor believes you can handle your borrowing.
There is no one way of determining your credit card limit.
Some credit card issuers offer credit cards with predetermined credit limits.
You can also ask the credit card issuer to increase your limit after you have established a good payment record.
Other credit card issuers turn to your credit history to help determine your card’s limit.
Other lenders simply minimise risk by considering a host of variables. For instance, some lenders may consider your income or debt-to-income ratio.
Ultimately, credit card providers follow their own unique policies when deciding on your credit card limit.
If you do use a credit card limit calculator, it may give you an idea of what your limit will be. This amount isn’t the final limit though. You’ll need to contact your credit card issuer for the actual credit card limit.