Risks associated with Credit Limit

People finance their homes, buy household materials and often a car; on the other hand loans are required to fulfill the daily life requirements. Often folks take up loans to fund their college fees, and of course lots of people make purchases with credit cards. One cannot get credit over nightly; money is not given to strangers. None of the banks, finance companies or retailers provides loans to unknown people as all credit procedures are governed by credit scores. A poor credit score can pull down people's lifestyle and consumer habits. Borrowing habits of individuals depend upon the credit scores. Credit limit is the capability of the customer to get a certain amount without going back to the financial institution or reviewing credit file.

Creditor's point of view:
In several ways credit limit help the creditors; effective time management is possible as no time is required to grant the credit. As a result the sales process speeds up. Several factors influence the credit limit. Also there are certain provisions under Equal Credit Opportunity Acts. While determining credit limit, all these should be considered before setting the final limit. In several cases, customers are allowed to cross the credit limit but certain penalties are applicable in such circumstances. Information from the credit agencies are extensively used for granting a specific amount in credit. It is crucial to have a good credit score to grab a credit card with a good credit limit.

Credit limits are managed by seasoned professionals; these professionals remain updated about the financial trends and the degree of opportunities and competitions prevailing in the market. A customer's repute in the market is often checked before granting the credit. After checking all the credit details of the customer, the agencies often assign the credit limit. Again, with an in house collection process it becomes easier for the creditors to grant a certain limit of credit. Length of terms and conditions with the customers play a crucial part. The risk is directly proportional with the terms and conditions. Setting credit limit is not a mere calculation, there are people setting limits for financial organizations over the years. Credit agencies provide reports. These reports highlight the past repayment details, present debts, credit histories etc. As per the industry norms and standards, if a customer efficiently shows liquidity, usually he gets a better credit limit.

Pertaining risks:
In the recent past several precautions have been taken to stop the credit frauds. In last five years, credit fraud has grown almost three fold. After any fraud, it becomes very troublesome to re gain a good credit score. After setting a particular credit limit, the creditors even suggests for periodical credit check. High credit limit increases risk by increasing the borrowing capabilities of the consumer. On contrary, a low credit limit reduces the risk. High credit limits may turn dangerous. In case of any fraud or identity theft, the borrower gets into high debt, the credit score are likely to be shattered. This even leads to consistent toil for debt recovery. So, checking your credit report regularly becomes your safety valve.