I've had a credit card for a long time, and every so often they've sent letters telling me they're increasing my available credit. Does it negatively affect my credit score to have a high limit, one that I never come close to on this card?
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4 Answers
No. Higher credit limit is good for your credit score. It's a good sign that the credit card company thinks you are low credit risk. Especially if they are not pulling your credit reports, enjoy the higher credit limit. Keep in mind that in general the higher your total credit line, the lower your debt, hence the lower the "utilization", the better it is for your credit score.
See this eHow article and this CNNMoney article.
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2True, but not necessarily for the reason you give. It is good because the ratio of used credit to available credit (some say this is 30% of your score) is improved by having more credit.– JohnFx ♦Aug 10, 2010 at 2:53
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@JohnFx, didn't I say the same thing? I said the higher your total credit line, the lower the debt (used credit), the better. Or the lower the utilization, the better. Utilization = total debt / total credit line.– grokusAug 10, 2010 at 13:56
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I was referring to the "Higher credit limit is good for your credit score. It's a good sign that the credit card company thinks you are low credit risk." Part, but overall I agreed with you (hence my vote). I just wanted to clarify that it wasn't the high limit that helped you, but the ratio.– JohnFx ♦Aug 10, 2010 at 16:03
The ratio of debt to credit (balance divided by limit) is more important than the amount of the limit. Missed payments, too many credit accounts, and carrying too high a balance can all negatively affect your score. However, if you own a handful of accounts and keep a low debt-to-credit ratio, you're credit score will be fine.
High credit limits probably won't hurt your credit score, but there can be some repercussions.
When you apply for a home loan, the lender may look at your available credit and total all your credit lines. This may lower the total amount of money they are willing to give you, or make you look like a riskier borrower, increasing your interest rate.
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@JohnFx: I thought debt-to-income ratios used your maximum credit line available.– Alex BAug 10, 2010 at 7:34
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1Available credit is not the same as debt. Now, if the OP were to run up those cards to the higher limits, that is a different matter entirely.– JohnFx ♦Aug 10, 2010 at 16:06
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2My friend had all of her available credit totaled. They wanted to know what she could pay if she maxed out. They had a reason to do this, and you're right that I may not have explained it exactly correct; but any information you give a lender, they can and will use to affect their willingness to lend, and how they will collect if things go wrong.– SpecKKAug 11, 2010 at 16:12
You can call the company and ask them to stop automatically increasing your credit limit.
If you will never need the full line, you can also ask them to lower your limit.
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Maybe you're trying to reduce your available-credit-to-income ratio? Aug 12, 2010 at 1:05
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@warren: Besides bstpierre's answer, it also reduces the risk if your credit card gets stolen. Sep 13, 2010 at 10:43
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4@Larry Wang, if your card has been stolen, and you report it as soon as you notice, your liability is the same whether the limit is $500 or $50000– warrenSep 16, 2010 at 2:19