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I had a very financially astute reason for getting my first credit card: it was freshman orientation day at college, and one of the banks was giving away free t-shirts to new credit card customers. When I signed into the card's website to pay my first bill, I noticed a "request credit limit increase" button. I pressed that button several times over the next few months, because I figured it would be good to have access to money in case some kind of emergency arose.

I was probably able to raise my limit six or seven times before the system finally told me that I'd have to call a human being to get it increased further. (I didn't call.) No emergency ever came up, and I never use all that credit. I think I've gone over 50% of my credit limit a total of one time since the card has been open.

As I mentioned in my previous question, a banker recently suggested that I carry a small balance on my credit cards, and that the optimal amount to carry per card is proportional to the card's credit limit. Later in the conversation, she said that it might be a good idea to call my credit card company and ask for a reduction in my credit limit, both to reduce that optimal amount and to prevent me from getting hurt by having too much unused credit available.

I've just been looking into this, and found some contradictory information. According to credit.com:

"No, there's nothing about having a lot of credit available that can hurt your score," says Paperno. "In fact, all other things being equal, more revolving credit availability can, for some, mean a lower credit utilization ratio (balances compared to credit limits), which can actually help the credit score."

So if your credit card issuers have been especially generous with your credit limits, don't worry that those high limits will tank your scores.

So, who's right here? Are the "too much total credit available" and "not using a big enough percentage of your available credit" situations potentially damaging? If so, how much? Either way, why?

  • This question was originally going to be about credit utilization ratio, but I have learned (thanks to the Money SE question What does high credit utilization really mean?, among other sources) that that ratio just depends on your total statement balances, not the amount that's paid vs. the amount that's carried. – Pops Apr 5 '14 at 4:01
  • 5
    The banker giving you advice does not know how credit scoring works. You want a low credit utilization ratio, more credit limit is good (if you can restrain yourself), at least 2-4 cards, age of accounts (longer is better, newer is less good), mix of accounts (revolving, installment (car), mortgage, student loan), on-time payments, and avoid deleterious activity (judgement, foreclosure, collections, bankruptcy). – ChuckCottrill Apr 9 '14 at 15:05
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Unless you have a history of over-using credit (i.e. you've gotten yourself into debt trouble), then I think that the banker is giving you bad advice in telling you to get your own credit limit reduced. Having more credit available to you that is left unused will make your utilization ratio lower, which is generally better for your credit score, according to this article on CreditKarma.com. The "sweet spot" seems to be 1-20% utilization of your total credit. (But remember, this is only one factor in your credit score, and not even the biggest-- having a long history of on-time payments counts the most.)

My own personal experience seems to bear this out. I have two major credit cards that I use. One card has a high credit limit (high for me anyway) and I use it for just about everything that I buy-- groceries, gas, durable goods, services, you name it. The other card has a limit that is about 1/3 of the first, and I use it for a few recurring bills and occasional purchases where they don't take the first card. I also have a couple of department store cards that I use rather infrequently (typically 1 purchase every 6 months or so). At the end of each month, when the respective statements post, the cards rarely have a balance that exceeds 15% of the credit limit on that card. I always pay off the entire balance on each card each month (no exceptions), and the cycle repeats. I have never been late on a payment, and my credit history for all of these cards goes back over 10 years. My credit score is nearly as high as it can go. If having unused credit were a detriment, I would expect my score to be much lower.

So, no, having "too much credit available" is not going to hurt you, unless you are not using it at all, or are tempted to abuse it (use too much). The key is to use common sense. Have a small number of cards, keep them active, spend well within your means so you can pay off the balance in full after the statement posts, and never be late on your payments. That's all it takes to have good credit.

  • The only possible 'negative' I've ever heard of is that if someone calculates your debt-to-income ratio by using a minimum payment of your credit limits - Having $100k in available credit on a line where a minumum payment is 3% or $50, whichever is greater, might mean some people calculate that in your debt to income based on the worst possible result (then being a minimum of $3k instead of, say, $50).... but even then.... I wouldn't worry about it. – schizoid04 Dec 13 '18 at 20:26
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I never give advice but I will now because you are getting poor advice. I run between 820 and 835 for a FICO score and have for years. I have a Discover, AMEX, VISA and MC. I have over 200,000 dollars of credit and I never EVER pay interest. I pay off the cards every month. So, does it matter how much credit you have or can you have too much? NO! Bank of America gave me 40,000 dollars credit and I don't even have an account with them except the card. Banks like people who pay their bills on time. Well, the computers at the banks do. LOL...DON'T be afraid of asking for more credit. Your score may drop for two months but that is it. Good luck with your money

  • Similar here: half a dozen cards, limits on each running around $10K, total spending on them maybe $500/month average (always paid off except for the current 0% interest one), credit rating over 800. – jamesqf Apr 25 '16 at 17:42
  • Yup. ~$100k in limit, I've never been above $15k used in my life (and that was for a couple of days) and maybe once a year I go past $2k. It's always payment in full. It's been a long time since I've looked at a true FICO score, the FAKOs run around 820. The one thing I have seen is if my utilization drops below .5% and rounds to zero that the FAKO scores drop. – Loren Pechtel Apr 25 '16 at 21:29
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Ironically, the worst financial advice I read comes from "bankers." The top dozen members here can be trusted to give better advice than the average banker. Your score is not improved by maintaining a balance, only by using the card(s) regularly. No need to carry charges month to month and pay interest, rather, have the bill reflect a 1-9% utilization. I'd recommend Credit Karma to see how the factors affect your score. FICO scoring prefers to see a large number of accounts, low utilization, high average account age, low number of inquiries, no late payments. CK will let you see a simulated score and how it changes based on these variables.

2

While @BrianRogers makes some good points, there are a few things you need to consider from the FICO perspective that I want to lay out simply for you:

  • If you have credit that you don't use, it will eventually be considered "dormant" in the calculations and therefore will do you no good, in the credit/spending ratio or credit worthiness. Your worthiness is based on how you responsibly use your credit, not how much you can hoard. SO in that respect the advice to use it and carry a balance one in a while is valid to prevent dormancy. However, always pay it off in full before getting hit with finance charge. The dormancy is dependent on the creditor, sometimes its as little as 45 days of non-use and sometimes up to 6 months. So to err on the side of caution, I would say put a cup of coffee or a dinner on the cards you don't use often once a month and then pay it at the end of the month.
  • It is never recommended to carry more than 2-4 major credit cards anyway. A Mastercard and a Visa are pretty much all you need. But you can go up to 4 cards if you want to also have an American Express and/or Discover. But anything more is unnecessary and often will hurt you in the worthiness evaluation. Also stay away from carrying cards that are not top-tier credit. Meaning avoid the low-end Capital One, Household, Orchard and such cards as they have a cap on how high your limit will ever get and they don't do you any good. Opt for top-tier cards if you have a good enough credit as they can reach up to 20k in limit and are valuated higher in your worthiness.
  • While you want to trim your credit and stick to a strong core, don't open and close accounts too often, and certainly don't close before a year and don't open more than 1 every 2-3 years because you will kill your average length of credit each time you introduce a new, younger card and/or lose an older card. You want to your average to be about 6-8 years to do you any good, anything less shows you as being less established and therefore less credit worthy. Just a few things to consider.
  • The beginning of your first bullet is not clear that you're referring to specific cards. Having a high limit on a single card will give you lots of unused credit, which as you said won't be dormant even if you just buy a coffee. 2) bullet, source that having more than 4 cards is harmful? Or that cap1 cards "don't do you any good"? – VBCPP May 7 '14 at 23:09
  • With respect to having unused credit to lower your util, you are correct an unused card with high limit is good for that but ONLY if it is not dormant. If it becomes dormant, it will NOT help you when it comes to your score. While your raw util will be reported with it in mind, the util portion of your score will be changed to reflect "active" util, so it will not do you any good. As for the more than 4 cards, its a known fact that too many cards and open credit limits make you a risk because if you suddenly binge, you won't be able to pay them all back and will most likely default. – GµårÐïåñ May 14 '14 at 18:40
  • As for the Cap1 cards, not all of them are bad, just the "sub-prime" cards (creditcards.com/glossary/term-subprime-credit-card.php). Capital One is known to have the most, Household, and Orchard are to name a few, those show that you are not established and therefore pose a higher risk, so they won't do you good to have them. If you can get a better card, get it and ditch these ASAP so as to have the least impact on your length of credit history. Hope those clear it up, let me know if you need more. – GµårÐïåñ May 14 '14 at 18:43
  • Your answer says "from the FICO perspective" implying that these go into credit score calculations. I've never heard that subprime/too many cards will lower your credit score. Underwriters may have opinions on it, but your fico score does not. – VBCPP May 14 '14 at 23:42
  • Yes as opposed to what? The FACO Vantage and other scores that are used by NO ONE to make credit worthiness decisions? Just because you haven't heard it doesn't mean its not true, after all the company that sets the standard and keeps the formula hidden to prevent gaming will not be advertising it. If you feel it doesn't apply to you, then don't use it and live with the results. Truth is not for everyone but I am almost certain you have never seen scores above 700, if that, but for those of us who are near the max at 800+ can vouch for it. – GµårÐïåñ May 15 '14 at 19:22

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