The Relationship Between Your Credit Score and Credit Limit

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The Relationship Between Your Credit Score and Credit Limit

One of the keys to managing your credit is understanding the role your credit score plays in determining your credit limit and vice versa.

Behind Credit Limits

Credit card companies decide your credit limit through underwriting, a process of considerable testing and analysis used to determine who to approve, at what rate and at what credit limit. Underwriting details are guarded company secrets because they impact how a company makes money. Due to this, it's hard for consumers to get more than a limited understanding of how credit limits are determined.

To shed some light on the relationship between credit scores and credit limits, Credit Karma sampled approximately 15 million Credit Karma members who visited the site in 2014, and compared their credit limits with their credit scores.

Findings

The graph above suggests that there is a significant correlation between consumers having a higher credit score and having higher credit limits. This makes sense when we consider the fact that your credit score is meant to be an indicator of your default or delinquency risk and overall credit management. Using credit score and other credit report information, a credit card company can estimate whether an increase in your credit limit could provide an additional revenue opportunity for them or whether a credit line reduction is necessary to reduce their risk for losses.

How does this work in practice?

Say, for example, consumers with a "fair" credit score may have an expected default rate of 10 percent*, meaning the expected loss on a $1,000 credit limit would be $100. On the other hand, consumers with an "excellent" credit score may have an expected default rate of one percent*, meaning the expected loss on a $1,000 credit limit would be $10. In this scenario, assuming the expected revenue from each of the consumers is similar, an "excellent" credit score cardholder is more likely to be approved for a higher credit limit, thanks to their better credit profile.

The influence credit scores have on credit limits works in a feedback loop, but other credit report factors can come into play in determining each. Other factors such as payment history, credit utilization, types of credit and changes in spending patterns can also contribute to an increase or decrease in credit scores or credit limits.

*Example rates are for illustration purposes only.

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All Comments

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5 Contributions
8 People Helped

Helpful to 4 out of 5 people

I've got a credit card limit of $1500 and a score 0f 745. I guess I'm an outlier...

1 Contribution
1 Person Helped

Helpful to 1 out of 1 people

what is the max allowed credit for a visa/mc? i have a citi and a usaa both with 50k limits

It is generally up to the bank. We have seen limit of $200K+

Review by
CK Moderator

Reply by
helonewman8

1 Contribution
2 People Helped
Helpful to 2 out of 3 people

The highest limit is NO max limit. AMEX Black cards, the old Diner's Club, etc.

1 Contribution
0 People Helped

I do not understand this cycle. The average person who makes a decent living using credit to live. Pays on time, and at a certain expense (interest) but yet the goverment(Fed,State,& Local) are all having budget defecits, and they don't understand how money is tight in the home. Then they take our tax dollars and help out the banks? Then the banks take our tax dollars and offer no help to the average person? Does this seem backwards to anyone else but me? If Congress had taken the TARP funds, and distributed them to the taxpayer(any income bracket) wouldn't that money had more stimulus effect than the way they thought it would and didn't? Some people would have paid off debt, others saved, others invested, but most, being American, would have gone out and spent it, on new homes, new cars, luxuries, necessities. Think of all those businesses that would have scene and increase in sales volume (goods, services, deposits) and how that would have created jobs. Instead they gave it to the banks to shaft us instead. Makes no sense.

Reply by
theman518

1 Contribution
0 People Helped

i think that would have had more impact too!

Top Contributor

Reply by
theheat71

42 Contributions
111 People Helped
Helpful to 2 out of 2 people

I Agree. The banks are still as greedy as they were before they begged for the 700 Billion....yes I said 700 Billion dollars form a trillion dollar deficit.

1 Contribution
0 People Helped

I recently had a credit card company CLOSE my account (visa), this after 15years with the company. I was never late and infact paid off the card before any vacations or known large purchases and maintained by balance at 10-12% of my credit limit that was $5000. There explanation was that I was CARRYING TOO MUCH DEBT. I have not openned any accounts in the last 5 years. What is a person to do, they refuse to talk to me in person and send me the same answer EMAIL everytime I contact them.

Look for a new credit card. Many issuers simply have too much liability and are closing accounts.

Review by
CK Moderator

Top Contributor

Reply by
janiesuper

13 Contributions
47 People Helped
Helpful to 1 out of 1 people

same thing happened to me, i feel your pain.

1 Contribution
0 People Helped

Credit Karma posts my credit score as 690 and the report I just paid for from Experian gives me a 738, are all using the same criteria to calculate scores?

It depends on the credit score model. There are dozens in use. Secondly, the data between the two bureaus will be different.

Review by
CK Moderator

Reply by
jhobaica

1 Contribution
0 People Helped

credit karma uses trans union score only

Reply by
edrollf

2 Contributions
0 People Helped
Helpful to 0 out of 1 people

MyFico shows me as having an actual FICO score of 759 from TU and 745 from EQ. Exp has me at above 750 on all three CBs by their scoring method. CK gives me a 717. The EXP monitoring service I use is Creditexpert and Score Plus.

They too rate 720 and up as excellent. Bank of America won't consider you excellent until your creditexpert score hits 780. so what is the range for Credit expert scoring? These scores are generally only a few point variant from my actual FICO.

1 Contribution
0 People Helped

My hang up is when the credit card companys tell me that the length of credit history isn't long enough, im 25 and my accounts have been open for 6-7 years a piece so what am i supposed to do. The real question is can they count!!

Many companies use "adverse factor" reason codes. The reasons can often be confusing. Chances are your score was not high enough and that reason code was returned by the credit bureau.

Review by
CK Moderator

1 Contribution
0 People Helped

Why does my truecredit in transunion shows a score of 704 and credit karma 592?

TrueCredit recently changed their score from TransRisk to Vantage. The Vantage range is 500-990. I suspect that is the difference between scores now.

Review by
CK Moderator

Top Contributor

Reply by
janiesuper

13 Contributions
47 People Helped
Helpful to 1 out of 1 people

its Jan 2010, what does credit karma use now? i recently bought my vantage score and it is in the 500s! my CK score right now is 714

Credit Karma uses the Transrisk model from TransUnion.

Reply by
CK Moderator

Top Contributor
161 Contributions
250 People Helped

i dont understand why you pushing this silly Public Shavings Bank with monthly fee when there are many Secure credit cards which just charge you an annual fee only? Like bank of America or US Bank

Public Savings has no annual fee or monthly fee.

Review by
CK Moderator

1 Contribution
0 People Helped

I have a low score and am currently trying to redeem myself and fix my college damage. What is the best way to do this.

Get current on your existing bills, pay all of them on time, and try to build credit with a secure credit card like Public Savings Bank.

Review by
CK Moderator

1 Contribution
0 People Helped

I use to have perfect credit.

Seriously, I got married and it went to hell.

suggestions

What happened? Marriage doesn't affect your score/report unless you use joint accounts.

Review by
CK Moderator

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