Are you in the market for a new credit card? As you compare credit cards, you may wonder just how much spending power you will get with each card and how banks make that decision.
Every credit card issuer will have its own formula for determining how much credit they’ll extend to you. Those calculations could include:
- Your credit score and your credit report. If you have a history of late payment or of defaulting on debts or if you have a great deal of outstanding debt already your credit limit will usually be lower than someone who owes less and has a better credit record.
- Your income. Suppose two people have applied for cards—one with a $200,000 income and the other with a $40,000 income. Even if both individuals have high credit scores, and similar debt-to-income ratios (the amount of money they owe in relation to the amount of income they earn), the person with the higher income will usually qualify for a higher credit limit on their card.
- The amount of credit you already have. A bank might limit your spending on a new card if you already have a large amount of credit available to you on other cards.
Getting your credit limit increased
Instead of focusing on credit limits on a particular card, you may want to consider other factors when trying to determine the best credit cards for your financial situation.
- If you’re likely to carry a balance from month to month, look for credit cards with zero or low interest introductory rates and/or cards that advertise a low rate of interest over the long term. (Remember that you have to handle the credit responsibly to keep those interest rates low.)
- You may want to consider cards that allow you to build up airline miles or points for purchases at certain retailers.
- If you’re saving for a vacation or a special event like a wedding, a credit card that offers cash back on purchases could be a great choice.
- Do you feel passionately about some cause or support the work of a certain organization? You could look for a credit card that gives the organization a percentage of the amount that you charge.
- Love music or movies or some other form of entertainment? There are cards available that give you special discounts on merchandise or the opportunity to purchase tickets early for certain events.
Even if you don’t get the credit limit you wanted on these credit cards initially, you can always ask for an increase in that limit once you’ve been using the card for six months or more. You can call the credit card issuer to make your request, or, with some banks, apply for an increase online.
Before you make apply for a credit increase, make sure that your accounts are up to date and that you haven’t had any late payments within the past 6 months. You should also be paying more than the minimum balance on your card each month.
Be prepared to make the case for why you deserve an increase, and be ready to provide the bank with a lot of the same information that they requested when you initially applied for the card, such as income, and monthly mortgage or rent payment.
If the bank denies your request for an increase credit limit, don’t give up. Do whatever you can to improve your credit record and apply for an increase again in six months to a year.