What is Credit Limit?
The term credit limit refers to the maximum amount of credit a financial institution extends to a customer. The loan provider schedules a line of credit for a credit card or loan. credit providers, typically sets credit limits based on information provided by applicants seeking credit. This limit is a factor that affects consumers’ credit scores and may affect their ability to get a loan in the future.
How to Determine Credit Limit?
The two most important factors that play a role in determining the credit limit are the person’s monthly income and credit score. The limit to be given to an individual is calculated as a maximum of two times his income for the first year and a maximum of four times his income after the first year. Considering that your income increases every year, it can be said that your credit limit will also increase with each new year.
Limits are set by banks and alternative financing institutions and are based on various information about the borrower. Financial institutions examine a person’s credit score, income, loan repayment history and other factors.
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