Credit card issuers have spent the past few decades developing a complex “matrix” system to match your credit profile with the “right” credit limit. Picture your credit score running down the left-hand column of that matrix, and your income running across the top row. An underwriter then sets optimal credit limits based on which block your application lands in. An 820 FICO and an annual income of $200,000 gets you a credit limit above $10,000. A 660 credit score and a part-time job may qualify you for a starter credit card with a $300 limit.
Yet, with the advent of inexpensive databases, setting a credit limit has become far more complex than that. Picture a 3-D version of that matrix, with different levels that can include your age and the type of work you do. A young doctor, fresh out of medical school, might qualify for a more lenient matrix than a 55-year-old school teacher.
Banks aren’t relying on stereotypes, either. Statistics can help predict both the lifetime value of a customer and the level of risk each account poses. That newly minted M.D. gets a higher credit limit because she’s going to rack up hundreds of thousands of dollars in reimbursed travel and entertainment expenses over the next few decades, of which the bank will retain a small portion in interchange fees. Her potential for a high salary means that she’s more likely to have enough cash to cover an outstanding balance in an emergency.
The Credit CARD Act of 2009 requires banks to evaluate income when making credit limit decisions, but lawmakers never specified how lenders would verify applicants’ self-reported data. Therefore, in addition to asking about income on credit card applications, many banks now compare your personal information to anonymous profiles of other account holders in your neighborhood, in your profession, or working for the same employer. If your neighbors and coworkers pay their bills on time, the matrix will assume you will, too.
Finally, if you apply for a credit card from a bank where you keep an active checking account, your prospective lender could use that information to determine your real risk. Rent checks and utility bills don’t show up on your credit report unless they fall into collections. However, an internal-facing risk management system could see that you’re always on time with your bills, granting you a little more leeway. American Express has taken this approach with its line of prepaid debit cards, promising an account review for customers who might otherwise not qualify for one of their charge cards.