Methods Used To Establish Credit Limits
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The main purpose of a credit card is to allow people to buy what they want today and then they can pay later.
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However, in order to receive a credit card, the financial institution will first determine your credit worthiness. This worthiness will then determine your credit limits.
Credit worthiness is determined by checking your FICO scores. The higher your FICO score, the higher would be your credit limit. However, credit card companies and financial institutions also check for other details like how many lines of credit you currently have open, the credit limits other credit card companies have given you, how many years you have had a record with the credit bureau, your current income etc.
Credit worthiness is always related to your FICO score. If you make regular payments on your loans, bills and credit card and have a checking and saving account with good credit, you will have a good credit score. On the other hand, if you do not make your bill payments on time, you do not have a checking or savings account, have a bankruptcy or foreclosure to your name, you will be deemed as a person with bad credit.
Generally credit card companies and financial institutions establish your credit limits based on your FICO score, income, past credit history. Income is an important criterion as credit card companies do not want to give more credit than what can be paid back. This means if your income increases, your credit limit can also increase after the credit card company establishes your reliability.
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