John Goddard is an author for PayingPaul.com, a website dedicated to helping people pay off credit cards without a loan or bankruptcy.

In order to make your credit the best it can be, you need to keep in mind that the credit score plays a large role in the determination of your credit limit and, in turn, your credit limit impacts your score.  A credit card company uses various tests and analyses to determine your appropriate credit limit. The process, which is known as underwriting, determines which persons they will approve for credit as well as what rate and limit they will be approved. Very little is known about this process.

A study was performed which compared the credit limits of various individuals to their credit scores. The research determined that there was a clear correlation between a higher credit limit and a higher credit score, which is also publicly stated as a credit scoring fact by FICO, the main credit scoring agency. The credit score of the cardholder can indicate whether or not they are likely to default, whether they are likely to pay the bills on time, and whether they manage their credit responsibly. With the help of the credit score, the credit card company is able to calculate the anticipated default rate of the consumer so as to determine whether it would be wise to increase the credit limit. If they believe there is a possibility to receive additional revenue through an increase in a credit limit, they may choose to do so.

An example would be one consumer who has an average credit score and a $1,000 limit accompanied by a 10% rate of default. The calculated loss would be about $100. Another consumer has a credit limit of $10,000 and a 1% rate of default making the anticipated loss also $100.  In this case, the cardholder with the good credit score would be given an increased credit limit due to their preferred credit and lower rate of default. This would enable the company to increase their profit potential through interest, fees, and credit card purchases.

The guidelines for underwriting are sure to affect the credit limits for the cardholder. According to research, the highest credit limit average was held by Bank of America and was $11,288. Capital One held the lowest with $3,254. This is most likely determined by the varying customer base that they target as well as their differing approaches to marketing and the types of solutions offered.  Bank of America typically leverages their relationships with their customers by dealing with high credit score consumers, oftentimes offering an unsecured credit card debt consolidation loan. This certainly accounts for the larger number of high limits because they usually consolidate multiple credit cards under one loan. Capital One targets individuals with all credit scores, including those with no credit such as college students. This would explain why they have a lower credit score average as a well as lower credit limit average

Keep in mind that the relationship between the credit limits and credit scores is not a mutually exclusive one. Others factors also affect the score and limit including payment history, additional lines of credit, as well as credit utilization. Alterations in the consumer’s patterns of spending as well as household income can also contribute to a decrease or increase in the credit limits of the individual.  In short, the underwriting process dictates the game rules when it comes to determining the credit limits and the issuing of credit. Through the understanding of scores and limits, you are better able to maintain your credit score and your credit limits.