Can A Higher Credit Limit Be Bad?

Dear Consumerist,

I am a Senior in college, great credit, never had to put deposits down for utilities and I have one line of credit. The credit line is a credit card which is currently at 3K limit and a low interest rate, of course rarely use the card, pay it off every month, only use it to show future creditors that I have had credit for a long time.

I recently received an offer to have the card upgraded to a 6K limit, I of course never intend to charge that much, however could having a 6K card with a 0 balance be bad at all for my credit and not good?

Thank You for a great website!

-Josh

Josh,

First of all, congratulations on being responsible with your credit. As far as your credit limit goes: Is is possible that a higher limit could hurt your credit score?

It’s possible, but it isn’t likely. The basic idea is that you want to have a good “credit ratio.” That’s the amount of available credit vs. utilized credit. That section of the score is just one section of a larger portion of your FICO called “Amounts Owed.” Amounts Owed = 30% of your FICO.

Is it a big deal to add 3k to your ratio? Probably not. It might even help. Just don’t run out and apply for 150,000 credit cards and rack up $400,000 in available credit. Moderation, my friend.

(Photo:meghannmarco)

Comments

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  1. NoWin says:

    Josh gets Gold Star of the day!

  2. I actually just had this conversation with my husband two days ago. Weird.

    OK, next question: If my credit score is HIGH but not PERFECT, does that mean I owe something somewhere, or does it just mean I haven’t build up enough good will with my one little credit card I use to pay utilities?

  3. Jeff_McAwesome says:

    I am aJunior in college. I have 3 lines of credit, and apparently a pretty good credit score (is there any way to see your score without signing up for some membership service?). I’ve got a student loan, a car loan, and a credit card that I got recently with a $5k limit.

    I guess I don’t really have a point, except to say that US Bank gave out a Platnum card with a $5k limit to a Junior in college.

  4. Buran says:

    Use the cards for everything but pay it off at the end of the month. That way you don’t have debt but you do get the benefit of the federally-mandated $50 fraud limit – and if you get scammed the money doesn’t come out of your real account the way it does if they get your check card number.

  5. gatopeligroso says:

    @Jeff_McAwesome: Under Federal law, you are entitled to see your Credit Report from the three different bureaus once a year at no charge to you. The website is : http://www.annualcreditreport.com

  6. bonzombiekitty says:

    @gatopeligroso:
    Yeah, I used that to check my credit after the gas company told me I’d need to put down a deposit for my new account. I thought it was strange since I’ve never missed a payment on my debts. So I checked the annual credit report thing. I found out that there was $20 that the gas company had written off on a previous account of mine from almost two years ago. I had sworn I paid it off, seeing has how part of my lease at the location that account was at said I had to show that I had no balance left at the gas company, and I remember showing my ex-landlord the $0 balance. And I had never received a bill or call from them about the balance.

  7. noquarter says:

    @gatopeligroso: The report is free. It costs money to get the score.

  8. JustAGuy2 says:

    @gatopeligroso:
    FYI, that lets you check your credit reports, but doesn’t get you your credit score.

  9. Jeff_McAwesome says:

    @gatopeligroso: Yeah, as those two above me said. I have seen my report, but I’m not signing up for FreeCreditReoprt.com’s service just to see my score.

  10. jharrell says:

    @JustAGuy2: True, but if you have seen your score a few times you can get a general feel for the actual number by just reading the report. At the least you’ll know if the score will be good… just not how good. (or bad)

  11. Flossie says:

    Although it could potentially get you into trouble, a WaMu mastercard gives you constant online access to your credit score and some helpful tips about how to undo any damage to your report. It might be worth it to open the account and never use the card, just to have the free score reporting.

  12. azntg says:

    If the creditor will offer the limit without a “hard pull” (usually, unsolicited credit line increases will usually involve “soft pulls” anyway, which do not affect credit scores), he has nothing to lose. Maybe he might see his credit scores rising. That is, of course, if he accepts the offer and otherwise follows Meg’s advice.

    Gotta love credit card companies. Wamu gave me a $4k limit and Amex a $6.5k limit. Did I mentioned I’m an unemployed sophomore college student? Goodness me. I PIF every time, so no worries there.

  13. catcherintheeye says:

    @spiderjerusalem: it could mean several things – if your utilizing a certain percentage of your available credit, that affects your score – also, length of credit history/average length of accounts and number of accounts with balances can all affect your credit score negatively.

    @Jeff_McAwesome: I think it can be very valuable to purchase a score occasionally, specifically if you are about to make a big purchase. Knowing where your credit lies can help negotiating, or simply tell you if you’re being ripped off.

  14. bostonguy says:

    One thing you can do with the free yearly credit report is to get one every 4 months, rotating through the 3 agencies. You can always opt to buy your FICO score at that time, or just use the agency’s own scoring system to get a feel, if it’s not needed for anything specific.

  15. ShadowFalls says:

    The high credit limit nothing but good.

    First, as mentioned with the credit ratio, it helps with your credit score. If you have to charge something on it for some reason at all, the higher credit will help offset the effect. If you had to charge $3000 to the card and only had that limit, it would be nicer for it to look as 50% utlilization instead of 100%.

    Second, the higher credit limit shows that the banking institutions trusts you. This helps when getting other cards or for cars loans and mortgages. The credit score shows you can be trusted, the higher amount of credit shows how much you can be trusted with.

    Last, you never know how much you will really need it. Depending on where you live, a natural disaster could make that credit limit your only life line in a horrible situation. Never hurts to be prepared, even if something doesn’t happen.

    As a side note, a person’s student loans tend to be shown as the earliest form of credit. Not always naturally, depends on the person.

    Remember, you can just as easily have $100,000 in credit, doesn’t mean it can’t be used responsibly. I do applaud Josh here for being an adult with his credit. So many destroy their future before they even have it.

  16. Jeff_McAwesome says:

    @catcherintheeye: Is there a place where you can pay once for a score and not get seceretly enrolled in a monthly billing cycle ala FreeCreditReport?

  17. Eric1285 says:

    I’ve always thought that more credit was good, since it helped your credit utilization ratio. I’ve had a credit card since I was 17. Currently, my line of credit is $7700 and I’m pretty sure my credit score is in the 730-750 range. When I first got the card, the limit was only $1500, but I requested one increase and they gave me one additional increase without me asking for it. I wouldn’t say I use my card particularly responsibly, as I basically charge everything on it during the school year and work to pay it off in the summer. Keeps me from having the worry about money during the school year, and it’ll be no big deal if I graduate with $5k in debt since that’ll be just chump change once I get a job.

  18. JeffM says:

    @Jeff_McAwesome:

    Yes and might I recommend getting your score from FICO directly – since that is still the most popular composite score used by lenders. MyFICO.com has what you need – it is a little too expensive for my blood. (If you want to see a 3-1 it is generally around $40)

    I will pay Equifax (they use Fair Isaac scores) when I do my annual check with http://www.annualcreditreport.com. Gives me an idea of where I’m at.

    FreeCreditReport most likely uses a Fake-O or non-FICO score – which while interesting may not represent the same number you see when you’re buying a car or leasing a place – I’d recommend sticking with a vendor that provides authentic FICO scores.

    Good luck!

  19. gniterobot says:

    @ShadowFalls: This makes sense to me, the article does not.

    If it’s a ratio then even small balances appear as a better percentage with a higher limit. And if you carry a zero balance then that ratio is always zero anyway.

    Does consumerist use some kind of Math I am unaware of?

  20. frankieman70 says:

    The best and easy way to get your credit report is go directly to a bank/lender and say you may want to buy a house and to pre-qualify you based on your credit score and booya legally they are suppose to give you a copy of it and not charge you. just give them fake numbers so they wont call you. lol

  21. Catperson says:

    @Frankieman70: They are not allowed to show you a copy of your credit score. Some do, but they’re not following the rules if they do.

    Also, the first time I ever ordered my credit report from Equifax it gave me tips on the top four reasons my credit score wasn’t as high as it could have been. One of them was that I had too much open credit. The logic was that I could potentially get into a ton of debt if I decided to charge the max on all my cards. At the time I had like a billion store credit cards that I never used that were initially opened so I could get a discount. I got rid of a bunch of them and decreased limits on others (do I really need a $2000 limit at Pier One?) and my credit score had improved drastically by the time I bought a house 3 years later. Of course, I was still very young and it may have just improved drastically because I 3 more years of credit history.

  22. mac-phisto says:

    @JeffM: that’s some pretty good advice. generally, i think the score is a waste of money, but knowing where you stand can give you a pretty good idea of what you should be paying.

    lenders use a variety of scoring models & even though FICO says their score is used by “most lenders”, i think they’re full of crap. i’ve been on both sides of the sales pitch & i can tell you that as much as they press the FICO as the score to get as a consumer, they’re pressing twice as hard to get lenders to use different scoring models.

    personally, i check http://www.annualcreditreport.com for the reports & get each report periodically throughout the year. when i really want a score, i get FICO standard for $15.95:
    [www.myfico.com]

    they give you a FICO scoring model from your choice of the 3 CRBs (TU, Exp, or Efx). unless i’m planning a particular type of purchase, i usually get the score for the report that “looked the worst” so that i get a low-ball of my score. i also like the other tool they give you – the score simulator. good way to figure out how to make your score better (or see how easy it is to tank it).