Most credit cards have limits. The limit is the maximum amount of debt you can have on your account at any given time without getting your charges rejected or being penalized.
Several factors influence your credit limit, including your income level, the type of credit card you use, and your credit score. Your latest statement should display your Credit limit.
When it comes to credit products and increasing buying power, a credit card is usually the first point of contact. There are a lot of credit cards that are simple to qualify for and can help you improve your credit score if used correctly. It’s no surprise that having multiple credit cards is becoming more popular in Canada.
What is a Good Credit Limit?
You should know that a good credit limit varies from one person to another. For one it could be $3,500 CAD and for another $50,000 CAD. Several factors affect your credit limit. Whatever the case, you should know that whatever credit limit your bank approves you for is probably the best for you.
This doesn’t mean that your spending should increase with an increase in your credit limit. You’re solely responsible for practicing good credit habits irrespective of how much money financial institutions throw at you. Let’s explore what a credit limit really means and what factors affect it.
What is a Credit Limit?
Credit limit refers to a financial institution’s maximum amount of credit that it can offer to a customer. A credit limit is set by a lending agency on a credit card or a line of credit.
Credit limits are typically set by lenders based on the details provided by the credit applicant. A credit cap affects a consumer’s credit score and their ability to receive credit in the future.
What is a Credit Limit Based On?
The basis for a credit limit is a result of a statistical model. This model considers an applicant’s credit score, rate of application for other forms of credits, length of credit history, income debt, and more.
The methods used by credit card companies and banks to set limits differ. However, credit scores remain a significant and constant factor.
For the bank, an applicant with a high credit score represents a low-risk opportunity. This person’s high credit score means that they are likely to pay their bills on time. In exchange, they can receive a higher credit limit from their bank or credit card company.
An applicant that has a lower credit score represents a greater risk. This person may have a less stable history of debt repayment.
Some creditors could have turned them down for loans or credit cards based on their credit history. The applicant will still be eligible for a card, but with a lower credit limit in this situation.
Understanding the Different Credit Score Limit in Canada
In Canada, credit scores range from 300 to 900. The better your credit score, the better (lower) interest rate you’ll be given compared to those with bad credit.
What is a Credit Score?
A credit score is a three-digit number that lenders use to assess a prospective borrower’s credit risk. It shows the possibility of them defaulting on their credit cards or loans.
If you don’t have a good credit score, you won’t be able to borrow money or get any sort of credit in Canada.
Equifax and TransUnion, are Canada’s two national credit bureaus. These bureaus generate credit reports and credit scores based on information received from borrowers’ lenders.
What Credit Score Range Does Canada Use?
Canada uses a credit score system that ranges from 300 to 900. The lower your credit score, the more difficult it is to get a credit card or a loan.
If you do apply for a credit card or loan considering your poor credit score, the interest rate would almost certainly be high.
In contrast, the higher your credit score, there’s a high possibility you are to be accepted for a loan, or credit card, and the lower your interest rate.
Breakdown of the Credit Score Range
- Very poor credit ( They are credit score of 300-559)
- Poor credit (They are credit score of 560-659)
- Average credit (They are credit score of 660-725)
- Good credit (They are credit score of 725-759)
- Excellent credit (They are a credit score of 760-900).
How to Request a Credit Limit Increase
- A credit limit increase can be requested via Online Banking Customer Services: search under “Banking Services” for “Request a credit limit increase.”
- You may request about increasing your credit limit over the phone by calling the customer service number on the back of your card (1-800-465-4653). You might be directed to your local branch if you are not able to finish your request over the phone.
How to Increase Your Chances of Approval.
It’s best if you do the following to improve your chances of being approved:
- Develop healthy spending habits.
- You must have had your card for at least a year.
- Your balance should be paid in full each month.
