Over the years cards have become very handy especially when it comes to purchasing products and services. They have eased the amount of money people carry around therefore eliminating the chances of getting robbed.
In order to have a bankcard, one needs to apply for it from a lending institution. When it comes to calculating the credit card credit line, lending institutions usually consider several factors.
Below are factors that lending institutions use when considering a customer’s credit card credit line.
Your personal income
Credit cards act like temporary loan facilities therefore in order for a customer to be issued one, the customer need to earn an income. Salaries and wages can be generated from various sources and some of them are working for a firm, running your own business and from an active investment.
Having a salary assures the bank that you will be able to pay your debts.
Your credit score
Your score is very important and it a major consideration when the lender wants to determine your credit line. Your score is composed of 6 items:
a.Credit card utilization rate – It is the overall total of debt capacity that one is utilizing. The lower the rate, the higher your score will be.
b.On-time payment history – On time payment history helps to show if your are making your payments on time. If your on-time payment history is closer to 100%, the higher the score.
c.Age of credit score – it helps to show how long you have been building credit. The longer your credit history is, the easier lenders can access your creditworthiness.
d.Total number of accounts – includes all accounts you have namely bank cards, mortgages, auto loans, student loans and bank loans.
e.Number of hard loan inquiries- Every time you apply for credit, there are a number of hard inquiries initiated. The more hard inquiries you have, the more desperate you are for credit.
f.Number of derogatory mark – includes civil judgments and liens among others. Any single mark will reduce your score therefore its important to avoid them.
Debt to revenue ratio
Majority of banks that issue plastic cards to customers usually take into account your debt to revenue ratio. For example being a customer you may have high revenue but you have lots of debt. It signifies to the lender that you are not only poor at managing your finances but chances are you will not be able to pay off your maxed out debt.
This will result in the bank not risking giving you a higher limit.
*Editorial Note: Any opinions, analysis, reviews, or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.