Credit card limit
June 1, 2005 5:43 PM   Subscribe

Should I ask my credit card company not to raise my limit?

My limit has been constantly going up and it has been amusing to watch. However, I have heard that if you have too high of a limit, it can count against you when you try to get a morgage (the bank is scared you might max the card and get in trouble). I suspect it may also hurt your rating if your limit is reduced (even voluntarily). Mine is just over 30K right now, should I tell them not to raise it or even reduce it (I can't buy a house till I leave California in a couple years, so any harm may have passed)?
posted by 445supermag to Work & Money (6 answers total)
 
You are scored based on your debt-to-limit ratio. So a higher limit is a good thing. Just don't let the temptation get to you.
posted by knave at 6:39 PM on June 1, 2005


The answer to this question depends on behavioral issues related to how you traditionally use or misuse credit. I'm sure there are already a million threads about this already so I'll just say go read Why Smart People Make Big Money Mistakes.
posted by matildaben at 6:42 PM on June 1, 2005


Here's a good article from Yahoo Finance about credit limits and how that might affect your credit rating. Having a higher limit is not necessarily a good thing, exactly for the reason you stated, and there is really no telling how far back a bank will look at your records, especially if you're a first time applicant for a large loan, like a mortgage. On the other hand, you are scored on your debt-to-credit ratio. However, this is only affected if you carry debt on your credit cards, because if you don't carry a balance (which lowers your credit rating anyway), your debt would be zero, and so is the ratio.
posted by orangskye at 6:45 PM on June 1, 2005


I agree that a higher limit is a good thing - it's the debt to income levels that really matter. So says Suze Orman my financial guru. She also says to never cancel a card, keep it even if you don't use it.

Having high credit limits shows lenders that you are responsible with your credit, but you should increase the cushion between your debt and your limits by paying down your balances so lenders don't perceive you as getting in more debt than you can handle.
posted by LadyBonita at 6:48 PM on June 1, 2005


Debt/income is good but the best thing of all is to have a high limit, spend a lot each month, and pay it off each month. So, if you can find some large monthly payments you've been making and run them through the card, you can blow your credit rating through the roof. My parents manage a bunch of apartment buildings and did this by buying all the fuel oil for the boilers on their MasterCards; not only is their credit power astronomical but they're still trying to use all the frequent-flyer miles this got them.
posted by nicwolff at 11:59 PM on June 1, 2005


Unfortunately the exact way FICO works its voodoo is a secret. There are however things like the FAKO that emulate it and FICO simulators to let you get a vague idea of how your score will change.

There's also the big daddy, MyFICO where you can get your actual score and other info, or you can buy it along with your credit report from the big three reporting agencies.

Others are right above - a big factor is utilization, which gives you the best score when your total debt load is around 20% of your total available credit. So if you are carrying $20 on $100 in credit, great. $80 on $100, bad. Age of accounts is a big deal too, so keeping a few cards longer is better than opening and closing a new card every year.

It's all f***ing voodoo but if you are going to be going after a mortgage in the near future it's potentially big money voodoo. I peruse the boards on Art of Credit and that's where I've picked up most of my knowledge on the subject.
posted by phearlez at 9:20 AM on June 2, 2005


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