What should a consumer consider when setting a credit limit?

When setting a credit limit, it is crucial for a consumer to consider their total debts because this provides a comprehensive insight into their financial obligations and ability to manage additional credit. Understanding total debts allows the consumer to assess their current financial situation, including outstanding loans, credit card balances, and other liabilities. This assessment helps ensure that the credit limit set aligns with their capacity to repay borrowed funds without risking overextension or falling into debt.

By knowing their total debts, consumers can establish a credit limit that is manageable, thereby promoting responsible credit use and financial stability. While factors like average income, the housing market, and education level may influence overall financial health, it is the total debts that most directly relate to a consumer's ability to handle new credit responsibly.