Set credit limits by risk band
Enter your risk bands with their probability of default, income and today's limit. See what each band can afford and what its risk earns, then get a suggested limit per band in a minute.
Profit at today's limits
2 of the 6 bands lose money on today's limit. They hold 17.0% of the accounts and lose €677,500 a year.
The calculation holds utilisation and the default rate the same at every limit, though a higher limit can raise both in a real book.
Today's and suggested limits
Pale bars show today's limits and solid bars show suggested limits. Dots mark what each band can afford, and the dashed line marks the highest limit.
Limits by risk band
| Score band | Share of accounts | Annual probability of default | Affordable limit | Return per euro of limit | Today's limit | Suggested limit | Expected loss today | Expected loss at suggested limit | Profit per year today | Profit per year at suggested limit |
|---|---|---|---|---|---|---|---|---|---|---|
| >=760 | 15.0% | 0.80% | €9,600 | 7.11% | €3,000 | €6,000 | €121,500 | €243,000 | €1,299,750 | €2,899,500 |
| [720,760) | 25.0% | 1.50% | €8,400 | 6.64% | €3,000 | €6,000 | €379,688 | €759,375 | €1,989,063 | €4,478,125 |
| [680,720) | 25.0% | 3.00% | €7,200 | 5.63% | €3,000 | €6,000 | €759,375 | €1,518,750 | €1,609,375 | €3,718,750 |
| [640,680) | 18.0% | 6.00% | €6,300 | 3.60% | €3,000 | €6,000 | €1,093,500 | €2,187,000 | €612,000 | €1,584,000 |
| [600,640) | 10.0% | 10.00% | €5,700 | 0.90% | €3,000 | €500 * | €1,012,500 | €168,750 | −€65,000 | −€177,500 |
| <600 | 7.0% | 18.00% | €5,100 | −4.50% | €3,000 | €500 * | €1,275,750 | €212,625 | −€612,500 | −€218,750 |
| Total | 100.0% | €150,000,000 | €253,250,000 | €4,642,313 | €5,089,500 | €4,832,688 | €12,284,125 | |||
| * A band marked with a star earns less than the lowest return per euro of limit, so it gets the lowest limit. | ||||||||||
The copy pastes into a decision table as two columns, with the band as the condition and the limit as the result.
Get the result by email
Next, run the band-to-limit table inside the credit decision and replay a limit change on past applications before it goes live. Start free
Show formulas
Affordable limit = Monthly net income × Maximum income share for payment ÷ Minimum payment share Return per euro of limit = Average utilisation × (Yield on balances − Cost of funds) − Annual probability of default × Loss given default × Share of limit drawn at default Suggested limit = min(Affordable limit, Highest limit) (Return per euro of limit ≥ Lowest return per euro of limit; Otherwise: Lowest limit) Expected loss today = Annual probability of default × Loss given default × Share of limit drawn at default × Limit Profit per year today = Limit × Return per euro of limit − Cost per account
The calculation uses one year at a time, with a flat default rate and utilisation, and excludes fees, interchange and capital charge. The affordability rule is your own policy.
How credit limits are calculated
A credit limit calculator works out a limit for each risk band from monthly net income, probability of default and the lender's affordability rule. It compares the return per euro of limit with the hurdle return.
The result shows how each band performs at today's limit and at its suggested limit. A lender can compare the figures across bands and use the band-to-limit table in a credit decision.
Credit limit questions
How do lenders set credit limits?
The limit depends on what a customer can afford and what the risk band earns. This calculator uses income, probability of default and the lender's own affordability rule to work out a limit by band.
How do I calculate a credit limit from income and risk?
The affordable limit uses monthly net income, the share available for the minimum payment and the minimum payment as a share of the limit. The calculator also compares the band's return per euro of limit with the hurdle return.
How does credit limit assignment by risk band work?
Each risk band has its own probability of default, income and current limit. The calculator works out a suggested limit for each band using the affordability rule and return per euro of limit.
How do utilisation and loss given default affect expected loss?
Expected loss uses probability of default, loss given default, the share of the limit drawn at default and the limit. Average utilisation also affects the return per euro of limit.
Why can one credit limit for everyone lose money?
A single limit can be too high for some risk bands and too low for others. The calculator compares each band's profit at today's limit with its profit at the suggested limit.