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Different credit card issuers have different criteria of calculating the credit limit to be granted to an individual applicant. Some of the key factors include your income, employment, credit score, maximum limit available on your existing credit cards, and the issuer’s internal policies. Let us discuss these factors in some detail.
Credit History
Your credit history is one of the first things a credit card issuer evaluates before approving your application. It helps the bank assess your creditworthiness and determine the level of risk involved in extending credit to you.
If you have consistently repaid your loans and credit card dues on time and maintained a healthy credit score over a long period, you are likely to qualify for a higher credit limit. On the other hand, a history of missed payments, defaults, or high credit utilization may lead to a lower credit limit or even rejection of your application.
Even the absence of a credit history can work against you, as lenders have no past borrowing behaviour to evaluate. To assess your credit profile, issuers typically refer to credit bureaus such as TransUnion CIBIL, Experian, Equifax, and CRIF High Mark.
Income and Debts
Your income plays a crucial role in determining the credit limit on your card, as it indicates your repayment capacity. However, banks do not consider income in isolation. They also evaluate your debt-to-income (DTI) ratio, which measures how much of your income is already committed towards existing loans and credit obligations.
A higher income may improve your chances of getting a higher limit, but excessive debt can offset this advantage. If a significant portion of your income is already being used to service existing loans, the issuer may assign a lower limit to manage risk.
Credit utilization on your existing cards may also be considered. Consistently using only a small portion of your available credit generally indicates responsible credit behaviour and may work in your favour when the issuer determines your new credit limit.
Employment Profile and Job Stability
Income is important, but banks also evaluate the source and stability of that income. A salaried employee working with a reputed company for several years may be perceived as less risky than someone with frequent job changes. For self-employed applicants, the nature of business, business vintage, and income consistency may be considered. Though these mainly play a role in th
Limits on Other Credit Cards
Issuers often consider the credit limits available on your existing credit cards while deciding the limit for a new card. This helps them understand the level of credit exposure other lenders have already extended to you.
If your existing cards have relatively modest limits, it may be difficult to receive a significantly higher limit on a new card immediately. Conversely, if you already hold premium cards with high limits and have managed them responsibly, issuers may be more comfortable extending a higher credit limit on the new card as well.
For example, if you have been given a 50,000 limit on your IDFC FIRST credit card, it could be difficult to get approved for Rs. 5 Lakh limit right away on another bank’s credit card. However, if you are already a member of another bank’s elite group of customers and have a credit limit of say Rs. 5 Lakh, it may be easier for you to get high credit limit on your new card.
Type of Credit Cards
The category of credit card you apply for can also influence the credit limit assigned. Premium and super-premium credit cards generally come with higher starting limits and are designed for customers with higher incomes and stronger credit profiles.
In contrast, entry-level credit cards may have lower maximum credit limits regardless of the applicant's income or credit score. Similarly, secured credit cards backed by a fixed deposit usually have limits linked to the deposit amount.
Other Factors
Apart from income and credit-related parameters, banks may also consider additional factors such as your occupation, employment stability, relationship with the bank, spending patterns, and overall customer profile.
In some cases, especially for co-branded credit cards, issuers may evaluate whether your spending habits align with the card's target audience. For instance, frequent travel-related spending could strengthen your profile for a travel co-branded card. However, such factors generally play a supporting role, with income, credit history, and existing liabilities remaining the primary determinants.
Remember, there is no fixed formula that all banks use to determine credit card limits. Each issuer follows its own underwriting and risk assessment policies. As a result, two applicants with identical income and credit scores may receive different limits from different banks.
However, factors such as your credit history, income, existing debt obligations, current credit limits, and the type of card you apply for play a significant role in the final decision. Banks may also factor in age, work experience, and career progression while assessing future earning potential and credit risk. Hence, maintaining a strong credit profile, keeping your debt levels under control, and demonstrating responsible credit usage can improve your chances of securing a higher credit limit.
