Credit card limit calculations

When applying for a credit card, you supply the bank with some information about your income and expenses, then they offer you a credit card with X limit. Obviously X here is determined by income, expenses and past credit history.

I'm wondering if anyone here has some insight or experience (i.e. you've worked at a bank approving credit card applications) into the process. I'm not looking for exact formulas, obviously everyone's situation varies, but what are some general guidelines that get used to determine whether or not (and how much) credit you'll offer someone?

e.g. assuming someone has good credit history, no loans or debts, they earn $x per week and their expenses are $y per week, would their max credit limit be ($y-$x) times 10? times 20?

If you have existing credit cards, obviously the limits on them count. If I already have a credit card with a 10k limit, is that treated the same as if i owed 10k on a loan?

Would someone who already owns a lot of credit cards but with low limits (say, three cards at $3 limit each) look worse than someone who already owns one credit card but with a higher limit (like $10k)?

Comments

  • I can't answer all of the questions, but you are right that banks treat any cards you already have as if they are full used, it has to do with potential debt. They have a 'responsibility' (I use that term lightly) to ensure you can reasonably pay back the amount of money you owe them.

    I think each bank will have a slightly different formula, and there is very little human decision making in it these days.

  • +2

    correct. last time i applied for anz cc in the branch, the girl just punched in all data (from what i told her) to her pc and voila in 15 mins i got approved for $20k limit.

    about any cards that you used, if you have a lot with high limit, you can told them "oh i am GOING TO cancel them next week, i only need one to keep as spare"

    thats what i have done. twice :D and ofcourse i didnt cancel my other cards.

    no lie here, i was going to but then changed my mind.

  • -5

    I can't answer the first question but you should ask for what you know you can afford to pay back each month. I've never had a problem with that.

    If you have existing credit cards, obviously the limits on them count. If I already have a credit card with a 10k limit, is that treated the same as if i owed 10k on a loan?

    They will be harder on credit cards because the interest rate is higher. When applying for a large loan, like a mortgage, credit cards are treated like they are full loans with their 19-22% interest rates. If you had a normal, unsecured, personal 10k loan, the interest rate would not be greater than about 13%. Even if your cards are empty, just that you have them significantly cuts down how much you can borrow.

    Would someone who already owns a lot of credit cards but with low limits (say, three cards at $3 limit each) look worse than someone who already owns one credit card but with a higher limit (like $10k)?

    No.

    Anyway, mother's advice to follow:
    credit cards were introduced to Australia in the 70s. No one died without them before that. You shouldn't buy what you can't afford to pay off, in full, every month, otherwise you are giving those leeches your hard earned cash. Don't do that.

    • lol i'm not looking for financial advice, I'm specifically looking for insights on how credit card limits are calculated. I don't really care how much i can afford to pay back every month. My current interest free balance transfer deal is about to expire in two weeks, so I need to pick up a new one. I can't ask for more than my current credit card limits, (i.e. if you currently have just one credit card with a $5k limit, a bank's not going to give you a >$5k balance transfer) so I'm wondering whether it's worth increasing the limit on my real cards so I can get a bigger interest free balance transfer…

      • -2

        you didn't say this upfront. If I'd known that I would have had nothing to add … but dude, get rid of this credit habit.

        • I asked an academic question. I didn't feel the need to explain why I asked the question, because that's irrelevant to the question. You can choose to answer it, or not. But instead you choose to give advice (based on assumptions, may I add. Although I'm not sure what else you could have based it on).

          Maybe next time someone asks an question requesting for information, you should stick to either answering with requested information or not at all.

  • Random

    Got a job applied for Amex, they gave me 10k, applied for bank west, they gave me platinum and 10k. Applied for Coles, they gave me 750……

    I was like wtf, rang them and asked to increase it. They said no lol

    • Now you should try this - cancel all your cards. Then apply for a Coles one first, then a bank west one, then an amex one and see how much amex is willing to give you. :P

      • Don't think it mattered cause my I then went for a nab (with my home loan) and still got 7k limit. 28 degrees also gave me a high one.

        Should stop getting so any cards lol. But then again I've never had a late payment and always paid in full lol

        • +2

          I don't think it hurts having more cards as long as it's not costing you any money. I keep an amex platinum edge card that's solely for the purpose of amex cashback promotions. The free flight cancels out the annual fee, so owning the card is practically free money.

          Unless you need to get rid of them for some reason (i.e. you want to get a home loan and get asked to), I'd say the more the merrier as long as they're all giving you something.

    • Same here, I have 13k limit on my amex which they repeatedly offered to increase to 17k but I have refused, Coles wanted 2 years' ATO notices of assessment before they agreed to increase the $750 limit to 2.5k!
      The Amex has been useful with its high limit, I have bought 2 cars over time (i.e. the old one plus 9-10k on amex) and got loads of points. Always paid off in full at the end of the month.

  • +1

    Banks look at your total credit card limits and have to factor in that you can spend all that money tomorrow

    They will also factor in 3% of your total card limits into your monthly expenses

  • +1

    The two strongest factors were time in employment with current job, and time at residence.
    This was over 15 years ago and would say they still have a large influence.

    • Thanks, didn't think these would play much of a part.

  • +1

    I would say regular income from employment, savings and regular expense - including where you make withdrawals. Apparently if you often withdraw from places likes pubs and casinos for gambling, they won't like you. My first CC limit was 20k, double what I thought I would get.

    • +1

      I always wondered that, but unless you're applying with your bank they'd have no idea where you withdraw your money from.

    • Yeah, I can prove income easily. but in terms of regular expenses and where I withdraw from, there's no way the bank would be able to check that. I've never been asked for stuff like, past statements from bank account when applying for a credit card (i.e. past statements might show where I withdrew money from). The most I've been asked is to show proof of how much money I have in a bank account, which you can provide without actually providing the spending history.

  • +2

    I don't think the bank you are applying for credit with knows how much credit limit you have with any other credit card you have. I think they only know the outstanding balance if you are paying interest.

    I was curious about this too so I got a copy of my credit report from Veda, and whilst it did show that I have accounts with Amex, GE Money and Citibank, the report did not show what the credit limit was for each. There is a field next to each which says "Amount: $.00". I think that the field only ever shows if you carry a balance from month to month (i.e. you don't pay off your card in full each month). That would be s red flag to a bank as it means you are paying interest on debt.

    I think your credit score also plays a factor. Use http://www.getcreditscore.com.au to get your score. I think if your score is Excellent, Very Good or Good, then they don't require proof of income/expenses, they just believe whatever you tell them and approve on the spot. But if your score is only average I think they require pay slips, bank statements etc.

    I found out I have a "Very Good" score, so on my last application I told them I only had 10K limit in total for all cards when in fact it is much much higher. I also only gave rough estimates for my income and also underestimated my expenses by a lot. Still got approved 20K from ANZ on the spot no problems.

    So basically, if you find your score from the above site is Good or above, I believe you can tell the bank any figure you like for income/expenses and other cards you own without issue in order to get the highest limit you want.

    • Thanks, i'll check that website out.

  • I work in one of the big four banks.

    We don't get told any formulas. The decision process is all
    Computer based these days.

    The major factors that effect the limit would be, from my experience;

    • your employment. How long you've been in your job and employment status.
    • if you hold a profile with that bank before the credit application.
    • if there's a home loan with the bank it's easier to be approved for higher limits
    • other cards in your name
    • and of course income and major expenses ( no existing loan repayments and expenses will ever be asked to be proven)

    I don't think all banks work the same though.
    I used to have a card with my employer of $30k - now dropped back to $6k. When I applied for a 28 degree card recently I could only get a limit of 2k.

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