Quote:
|
Originally Posted by sarah4554
A third of your credit score is based on debt-to-credit ratio.
|
Yes and no. It's actually more complicated than that (as if FICO wasn't already akin to black magic
). That third looks at your credit utilization in two ways - both individually (i.e. how much "space" you have on each credit card) and total percentage (total debt/to total credit x 100). Best scores are 30% or less utilized on all cards *and* on total debt.
Quote:
|
Originally Posted by sarah4554
I always thought that a high spending limit hurt your credit score because it represented potential debt.
Did you know this? What are your thoughts on this? Doesn't it seem a little odd that the more potential debt you have the better your credit will be?
|
High spending limits affect your credit score positively (as you noted) but may still affect your borrowing potential negatively. Your credit score is not the only factor lenders consider; they look at your income (credit score does not), total debt (again, credit score does not - there are debts that do not report, many mortgages for example), your debt service ratio (again not covered by the credit score). They also will look at your potential indebtedness, and this is where having too much available credit could potentially hurt. In practice, most lenders will simply ask that you close a few accounts.
We have tons of available credit - I mentioned to my husband that if we maxed out everything we could put ourselves in debt to the tune of $150k tomorrow
, but also good credit scores and have never had a lender bat an eyelash about the potential for us to get into serious trouble. Go figure.
Jackie