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Know about Determination of Credit Limit

By Faye Mergel
Published: Wednesday, December 11th, 2013

What’s credit limit? It is the amounts available for charging on credit card. The lender sets dollar amounts available to the customer related to a new credit line. So which are the factors that lenders consider to set the credit limit of their customers? Two prime factors help in the setting of individual credit limits and this includes the INCOME LEVEL of the customer and CREDIT SCORE.

The personal income of an individual is one of the main factors that determine the credit limits that lenders set. After all, the creditors must consider the repayment capabilities of their customers! Card Act of 2009 required the declaration of individual income for credit card applications. Household income however did not appear in that scenario.

At one hand, it strove to keep youngsters from irresponsibly spending the hard-earned money of their parents but at the other dependent spouses could no longer qualify for credit. After much public uproar, the authorities removed the restrictions and household income declaration once again came into force recently for credit qualifications.

Six different factors constitute the credit score of the individuals. These are the following.

Utilization Rate of the Card

This signifies overall credit limit percentage. Calculations involve division of total card balance by total card limits. Lower percentages signify higher credit scores.

Credit History Age

The length of credit built ups is the credit history age of the individuals. Both closed and open accounts become significant for this calculation. The length of credit history determines the creditworthiness.

Derogatory Marks Number

This includes accounts in bankruptcies, tax liens, civil judgments, and collections. Even a single derogatory mark can bring down the credit scores. Therefore avoiding them is the best course of action.

Hard Inquiry Numbers

Every time one applies for credit, hard inquiries add to the credit report. They remain there for at least two years before falling off again. Please send too many hard inquiries can show your desperation for getting credit.

Total Account Numbers

The credit report shows the total number of accounts one hands. This includes personal loan, auto loans, mortgages, credit cards, and student loans.

History of On-Time Payment

This gives the creditors an idea regarding your on-time bill payment instances. The more the number of these are, the higher your credibility.

Requirements of credit score can vary from lender to lender. Your credit rating EXCELLENT, GOOD, FAIR, and POOR category makes all the difference to your credit limit!

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