It’s certainly very clear that a credit score has a lot to do with your financial dealings and plays a major part in loan and credit approvals. However, some are still confused how a three-digit number determines the credit limit on credit cards? So, before moving ahead, let’s start from the basics to first understand what the credit limit is and how credit scocr could be a major factor for the banks and financial institutions to zero down on the credit limit.
What is a credit limit on credit cards?
Credit limit is basically the maximum amount that you are allowed to have on the credit card. It is the degree of purchasing power that you have with your available limit on the card. Higher credit limit means more power to purchase. Upon exceeding the credit limit, the transaction would either be declined or the card issuer would charge overdraft penalty in the next statement cycle.
What is a credit score?
A credit score is a three-digit numerical representation of financial standing, ranging from 300 to 900. The scocr is determined on the basis of certain factors such as payment history, credit utilization, outstanding debt, credit mix, and average age of credit accounts. Potential lenders consider the credit score as a key factor to determine the creditworthiness of a borrower. Higher the scores, better would be the creditworthiness.
How credit score determine the credit limit?
Now here comes a big question, what is the role of credit score to help the card issuers decide the credit limit for an individual cardholder? As we all know that the credit score is a reflection of an individual’s financial well-being, it is used as a key factor to set the credit limit on the credit cards. For instance, if a person has a higher scocr, it would mean that he/she has a clean payment history and can be trusted for not defaulting the payments on credit cards. Thus, the banks and financial institutions could set higher credit limits on such applicants. On the other hand, if a person has poor credit standing, the card issuer company may not consider him/her as creditworthy, and in fact, might decide to decline the credit card application. Even if the application is approved, the credit limit would be set lower and the card would be secured against a certain amount.
Can credit limit help improving the scocrs? Yes, your credit card usage plays a major role in boosting your overall credit standing. Say if you had a poor score and the bank approves lower credit limit, you can certainly improve the scocr by making timely payments and keeping the credit utilization below 30%.
Scocre Credit Health, Score & Report 