How your credit limit is determined

You decide to apply for a credit card, go through the application process, and are approved. You receive your card and notice that your credit limit is not what you expected. At this point, you may be wondering how this credit limit was determined. You can learn more about the behind-the-scenes workings of your credit card here.


What is your credit limit based on?

The credit limit is the result of an involved statistical model that takes into account an applicant’s credit score, income, debt, length of credit history, rate of application for other forms of credit, and more. The method by which banks and credit card companies set limits varies, but credit scores are a constant and major factor.

  • An applicant with a strong credit score represents a low-risk opportunity for the bank. The high credit score indicates this individual will likely pay their bills on time. In return, the bank or credit card company will reward them with a higher credit limit.
  • An applicant with a lower credit score presents more risk. This person may have a less consistent history of paying off debt. Their credit history may also show other creditors turning them down for loans or credit cards. In this case, the applicant could still be approved for a card but with a lower credit limit.

What a high or low credit limit means for your credit score

So, now that you’re looking at the limit you’ve been granted, you have a sense of why it was set there. The good news is that your credit limit, even if it’s low, could still benefit your credit score. That’s because credit scores are positively affected when more credit is available to the user. However, creditors also need to see that you are savvy with that credit. In order to get the maximum value from your credit, you should avoid maxing out your cards. If you run up your credit cards and use all the credit available to you, that can start to negatively impact your credit score. Carrying smaller balances that you are able to pay off each month demonstrates you are responsible with your money, which boosts your credit score. As time goes on and you use your credit wisely, you may be eligible for an increase in your credit limit.
 

Apply for a credit card with CIBC

You can choose from a variety of cards that offer travel, cash back, and gas rewards, so that you can enjoy great perks as well as a boost in your credit score. You can apply for a credit card online or contact a CIBC customer service representative at 1-800-465-4653 to get started.

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