High income but low credit card limit? Here’s why your bank doesn’t want to give you more

If you are tempted by calls for credit cards with different schemes, hold that thought for a moment! Before you sign up the document for yet another new credit card, have you ever wondered how is your credit limit decided and if you have the room to raise it later?

“When you sign up for a credit card you are requested to fill up a form providing details of your income, KYC and employment. Based on the details you provide the credit card company first checks your CIBIL TransUnion Score and CIBIL Report to assess your credit history and past credit behavior,” says Harshala Chandorkar, COO, CIBIL.

She adds, “If your CIBIL TransUnion Score meets the cut-off limit of the credit card company and they are satisfied with your CIBIL Report, they proceed to decide your credit card limit, rate of interest and terms and conditions on your card.”

It must be noted that while each credit card company follows its own set of criteria for deciding on the credit card limit, the credit limit is primarily a function of an individual’s income and usage.

Chandorkar explains that the crucial factor that determines the credit limit for a credit card include-- income documents such as salary slips, income tax return documents and surrogate methods which include your association with a brand, a merchant outlet or a premium club. But apart from the income, a credit card company before fixing the limit of the credit card also takes your credit history and credit score into account.

This is primarily done in order to understand your repaying ability. If your credit score is low, your credit card limit would also be low. And if you have a higher limit, you can swipe your card a little liberally without worrying about your card being declined.

For instance, you may have an income of Rs 60,000 per month. However, the limit on your on your credit card could be just Rs 1 lakh. If you have been wondering why your limit is so less as compared to your income, then you should probably check your credit history and your credit score once again.

We know what are you thinking now. You probably want to know if you can raise the limit on your cards. And the answer is a definite yes.
“Most banks make you eligible for getting an increase on your credit card limit after 6-18 months of you availing and using the credit card, depending upon their credit policy,” says Chandorkar.

However, credit card companies do not increase the limit without their own assessment of your credit behaviour. According to Chandorkar, the raise in credit limit for a card depends primarily on two factors—your payment history for that particular credit card and your payment pattern for other credit relationships, which is reflected in your CIBIL Report and CIBIL Transunion Score.

If the banks or the credit card company finds your overall credit behaviour satisfactory, it will allow you to up your credit limit.

But the catch here is that while the banks can increase the limit on your credit card, they also have the power to reduce it, if need be. Chandorkar points out that banks and credit card companies often do it when they find an individual’s credit behaviour hinting at a possible default or delinquency on loan and credit card payments.

One must remember that credit card issuers regularly keep a tab on their customer portfolio and constantly check for their borrower’s credit behaviors. Well, this just leaves us with one advice-- Spend wisely and stay safe!