1. What is Credit Card Limit Calculation?

Credit card limit calculation based on verified income is a standard practice in the financial industry to determine the maximum credit amount that can be extended to a cardholder while maintaining responsible lending practices.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

• \( verified\ income \) — Annual income that has been verified by the financial institution (currency/year)
• \( factor \) — Multiplier determined by the issuer's risk assessment (dimensionless, typically 0.2-0.5)

Explanation: The factor accounts for the issuer's risk tolerance, the cardholder's credit history, and other underwriting considerations.

3. Importance of Income Verification

Details: Using verified income rather than stated income helps prevent overextension of credit and reduces default risk. Regulatory requirements in many jurisdictions mandate income verification for credit products.

4. Using the Calculator

Tips: Enter verified annual income in your local currency and the factor provided by your financial institution. Typical factors range from 0.2 to 0.5, with 0.3 being common for standard credit cards.

5. Frequently Asked Questions (FAQ)

Q1: Why is income verification important?
A: It ensures credit limits are based on actual repayment capacity, reducing risk for both lenders and borrowers.

Q2: What documents are used for income verification?
A: Pay stubs, tax returns, bank statements, or employer verification letters are commonly used.

Q3: Can the factor vary for different customers?
A: Yes, factors may be higher for customers with excellent credit history or lower for those with higher risk profiles.

Q4: Are there regulatory limits on credit card limits?
A: Some jurisdictions have regulations limiting credit relative to income, especially for certain borrower categories.

Q5: How often should income be reverified?
A: Typically every 12-24 months, or when the customer requests a credit limit increase.