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Given my existing credit score and annual income, how do I calculate what a reasonable credit limit for me should be?

I'm really looking for an order-of-magnitude estimate. e.g. should it be 40% of my income? 5%? 300%?

Is there anything else that would drastically affect the answer? (E.g. how much of the year I work, etc.?)

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    Does this help? money.stackexchange.com/questions/6341/… It isn't exactly your question, but there are interesting answers. – MrChrister Jun 23 '13 at 5:26
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    @MrChrister: A bit, but the comment that says "Those limits seem really low." makes me wonder how accurate that is. Any ideas? – Mehrdad Jun 23 '13 at 5:31
  • Your credit limit should be zero, because you shouldn't be needing credit. If you need credit - you live beyond your means. – littleadv Jun 23 '13 at 5:44
  • I don't think we're really addressing your question. For me, I don't really understand why you ask this question. Why do you care how they come up with the number? If you get approved, you'll get what you get, and it will likely be more than you should use up each month if you want to be prudent. If it isn't, you demonstrate you can use what you have responsibly, and then ask for more. The worst they can do is say no. What am I missing? – mbhunter Jun 23 '13 at 7:04
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    The confusion with this question is the word reasonable. The CC company calculates the max they will give you. You calculate the minimum amount based on how you plan to use the card, and the % utilization you want. Neither addresses the word reasonable. Too big of a limit with 100% utilization puts you at risk if you lose your job. Comments show you are interested in the max they will give you. The answers are focusing on reasonable, based on how you plan to use it each month, and a 10-20% utilization rate. If you never used the word reasonable you would have gotten the answers you wanted. – mhoran_psprep Jun 23 '13 at 18:42
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If you are a pay in full card user, the math runs pretty simple. Say you earn $48K, or $4K/mo. You try to run most expenses through the card to get whatever rewards, so the most 'regular' spending can be will be $2K or so (mortgage/rent usually can't be charged). If we want the $2K to average a 10% usage, you ideally want open credit lines to total $20K. You can have as much as $4K on the bill and still be at 20% utilization.

The above creates a 'rule of thumb' goal of about half of one's salary as the goal for available credit. With a caution to readers, this is not advice to carry that amount in outstanding debt. If the credit agencies didn't look at utilization, 10% of one's salary would be enough in most cases.

Rules of thumb are meant as a starting point. Some people avoid cards for whatever reason. One card with a $2000 line might be enough to rent a car and hotel, and be used for little else. Others play the reward game, and this advice is geared toward that kind of heavy user.

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    +1 awesome answer, that's basically what I was looking for, thanks. – Mehrdad Jun 23 '13 at 23:47
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    I aspire to "awesome" and thought I understood your goal. Glad to help, Mehrdad. – JoeTaxpayer Jun 23 '13 at 23:48
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Assuming you're not an extremely high risk, banks will gladly approve a credit limit of several times your monthly income.

They want you to carry a balance. That's where their profit is.

Another way of saying this: "We'll give you more than enough rope to hang yourself."

Now, as far as how much is reasonable for you to charge, you should pay off your balance in full each month. If you can't do that, then the level of credit usage is unreasonable.

  • "Now, as far as how much is reasonable for you to charge, you should pay off your balance in full each month. If you can't do that, then the level of credit usage is unreasonable." That's quite a vague answer. I was hoping for something more tangible (i.e. a number I could calculate). – Mehrdad Jun 23 '13 at 5:32
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    It wasn't meant to be vague. How much should you charge each month? Not so much that you have to carry a balance, because then you pay interest. What that number is exactly, you'll have to look at your budget to find out. – mbhunter Jun 23 '13 at 5:35
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    I've never asked for a specific credit limit. I've always gotten far more than I would ever actually use, so the concept of "asking for too much" is foreign to me. How they arrived at the number has been immaterial. I just shake my head: "They approved me for that much?!" – mbhunter Jun 23 '13 at 6:59
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    But in any case, I did give you a ballpark estimate: several times your monthly income. That's what mine is currently between all of my cards. Probably close to ten times. – mbhunter Jun 23 '13 at 7:01
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    +1 and my result is 5X monthly income. Between our answers, OP should have what he needs to narrow down his goal. It's a range, not an exact answer. To the OP's question of how much they'll give him, out total available credit is just about 1X our annual income. – JoeTaxpayer Jun 23 '13 at 14:57

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