How Are Secured Credit Card Bank Limits Determined?

A bank credit card is secured by funds placed into a savings account with the issuing bank. Banks offer secured credit cards to those individuals who do not have good enough credit to receive more financing without placing some collateral. The collateral is used as assurance that you will not default on the credit card or miss multiple payments. Because you are considered a high risk borrower, offering this assurance can be the best way to keep interest rates low and guarantee approval on a card application.

What are Credit Card Limits?

Your credit card limit is the maximum amount of funds you have available through your credit account. At any given time, you can use up to that amount before your card is "maxed out." Then, you will have to start paying down the balance before you make any more purchases. Many people elect to only pay minimum charges each month and consistently carry a balance from month-to-month. This is an option for all credit cards, but will cost money in interest. Experts advise to always pay down your balance each month. This will not only keep your interest payments low but also keep your credit score high.

What Factors Determine Credit Card Limits

Credit card limits are set by the card issuer when you apply for the card. The primary factor determining the limits is your credit score. Other factors will come into play including your income, how many accounts you have with the bank, and how much money you have in those accounts. You may also be required to provide references to a card issuer. Your interest rates will be lower and your limits will be higher for a good application.

If your credit score changes while your card is open, your rates and limits may adjust. Most banks allow credit card holders to request limit increases periodically on any open credit card account. In order to get approved, the person must improve their financial health by raising a credit score and making consistent payments on the card he or she is seeking a limit increase on. Do not expect a limit increase on a card you have not paid off consistently.

Why Are Secured Credit Card Limits Different?

Secured credit cards are different than unsecured credit cards because the credit line is based on funds you have placed with the bank. Typically, you will need to place a few hundred to a few thousand dollars in order to get a secured credit card. Most people who seek these cards have bad credit and are using the cards to rebuild their credit.

Your terms, including interest rate and limits, will partially depend on how much money you place on deposit. Placing larger amounts will get you larger credit lines. Your credit line will be bigger than the amount you have deposited, but how much bigger depends on your credit score. A number of banks offer secured credit cards including: Chase Bank secured credit card, Bank of America secured credit card and others.

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