Does your credit limit really represent your earning potential?

Gold, platinum, and titanium dazzle the eyes with their brilliant luster. Today these precious metals have taken on another, more tantalizing connotation, credit. If you're fortunate enough to have one or more of these elements attached to your line of credit, you probably have a very high spending limit. Unfortunately, not so many credit card holders are as lucky, and recent research shows that there is a psychological connection between your maximum credit limit and your lifetime earning potential.

Credit cards are almost a necessity in today's fast-paced technologically convenient world. You need a line of credit to lease a house, lease a car, rent a hotel room, make virtually any purchase on the internet, and the list goes on and on. But, as paper money is slowly being phased out, there is an important factor that needs to be taken into account with credit that doesn't appear with hard bills and coins.

Spending limits on credit cards allow for consumers to "buy now, pay later." Basically, if you have a $1,000.00 spending limit, you can have access to that $1,000.00 at any time whether you actually have a grand in the bank or not. A $1,000.00 credit limit is relatively low, but some lines of credit offer limits upwards of $10,000.00. There are many different cards out there with all kinds of plans that can be tailored to your specific needs. This process of finding out what you really need versus jumping on the line of credit you think you want is crucial. It is extremely important to pay close attention to a credit card application and the things that particular card has to offer such as APR, spending limit, rewards, etc. All of these variables can have a profound impact on your psychological finances.

A study published in Marketing Science in 2002 by Dilip Soman of Hong Kong University and Amar Cheema of the University of Colorado showed that there is a palpable psychological connection between a person's credit limit, and their perception of what they will be able to earn over their lifetime. Their research shows that, "if [inexperienced] consumers have access to large amounts of credit, they are likely to infer that their lifetime income will be high and hence their willingness to use credit (and their spending) will also be high." Of course, the profile is just the opposite for card holders who are only approved for low spending limits. They use that limit as a predictor of a low lifetime earning potential, causing them to not spend. But, Soman and Cheema's study only confirms these results in inexperienced credit users. Their findings go on to show that, "as consumers gain experience with credit, they start discounting credit availability as a predictor of their future and start questioning the validity of the process used to set the credit limit."

Soman and Cheema's findings are nothing that should be startling. It is often a very confusing process for first time credit users, so the important thing to do is to try and find someone with experience to help you out. Most banks will assign you a credit advisor to go over your options and help you design a plan that is manageable. Also, there are tons of resources online that can help walk you through finding the right card. Credit is important in establishing a good foundation to increase your financial lifespan. Gaining experience is only possible by diving in. Jumping into the shallow end is the way everyone starts out, but it's not an indicator that you don't have the potential to be an Olympian of credit.

-A.J. Register