Credit Card Credit Limit Question...

[Ronin]

I have a Mastercard with USAA bank which is 8.25% APR and 1.25% cash back. Before I knew much about credit scores, they increased my limit from $5000 to $12,500. I had them lower it back down to $5000 because I thought having a limit that high is asking for trouble (Can't see how I'd ever charge 12K on a credit card though). However, it seems having a higher limit and lower balance gives you a better credit score. Therefore the higher limit must be better correct?

Also, If I ask them to increase the limit again, is that going to be an inquiry into my credit?

[poundwise]

It depends.

The portion of your FICO score that concerns itself with your credit limits has to do with the ratio of used credit to available credit or, in other words, your credit usage.

If you have $1,000 in available credit and have a balance of $100 then your utilization is 10%, which is very favorable.

The same card, with a balance of $500 has a 50% utilization ratio, which is very poor.

So, this is why people will often state that you should not reduce your limits. However, it is not a matter of the limits themselves, but the ratio.

If you keep your usage down and you don't carry a balance, then there is no real benefit to seeking an increase.

On the flip side, high limits can be detrimental as well. Available credit on open accounts is most often counted as debt/potential debt by mortgage lenders, for instance. Though the high limit itself won't hurt your FICO score, it could be a negative factor when you seek a home loan or business loan or other significant loan.

Bottom-line. If you are given a limit increase, most of the time you ought to just accept it and don't worry about it. If you feel better keeping your limit lowered, then by all means, do so, just be aware of the credit utilization. And, if one has very high limits on seldom used accounts, etc. then one may want to lower limits prior to buying a home. Though this may have a negligible effect.

In your case, I would not seek an increase. Just raising your limit will have little to no effect on your score, unless you are carrying balances on this or other cards you own.

And yes, you will almost certainly get a hard pull on your credit if you ask for a limit increase.

[Ronin]

Thanks for the info, I'll just leave it where its at until the randomly increase it again.

Also, Do you think the card I have is good? Or is there a better one out there?

[Vapors]

1.25% cash back on everything is pretty good. I have a Citibank Dividend card that gives me 2% back on groceries, drug stores, gas and utilities with 1% on everything else. I have a Chase BP card that gives me 5% back on BP gas and 2% back on hotels and restaurants with 1% on everything else.

So I use whichever card gives me the best reward at the place I am spending.

[myself]

Originally Posted by Ronin

I have a Mastercard with USAA bank which is 8.25% APR and 1.25% cash back. Before I knew much about credit scores, they increased my limit from $5000 to $12,500. I had them lower it back down to $5000 because I thought having a limit that high is asking for trouble (Can't see how I'd ever charge 12K on a credit card though). However, it seems having a higher limit and lower balance gives you a better credit score. Therefore the higher limit must be better correct?

Also, If I ask them to increase the limit again, is that going to be an inquiry into my credit?

I've done that in the past too.
Now, I'll ask for an increase every once in a while, for a small amount (usually not more than 3%).
If you are not going to need a high score anytime soon (say 5-6 months or so), then don't worry about it. Ask if they'll reinstate the original limit. One of my lenders did exactly that without a "hard pull" on my credit report.

Why would you want that high of a credit limit?

1. Your loan to credit line amount will often be a very small percentage.
2. If you get 0% or other low rate offers (especially for long term), than you can borrow on the credit line, and send the money directly into your high interest savings account (at EmigrantDirect as an example). Then you electronically transfer enough out of the savings account to pay the minimum payment (or slightly more), before you have to write a check to the credit card company. And of course, only do this on a credit card that you do not carry a balance on.
3. If you have a high credit limit rewards credit card, and you are getting a used car but going to put a large downpayment on it (from savings), then you may be able to charge quite a bit onto the card, and merely pay it back from savings.

Full disclosure: I've done #2 above very successfully, with a credit card that has a limit of $30,000+ on several occasions over the last few years. It only cost me $75 for 6-12 months for the balance transfer fee, but I made 4%-5% on the money they let me borrow. And they also don't offer that as often as they used to now. .
My wife and I have also charged $5,000 one time for a used car, and we got back 1% on that (but paid the balance in full from savings when it was due).

[Ronin]

Great advice, thank you!

I'll see if they can increase it without doing a hard credit pull, I'm sure they will. I will be buying newer/used car soon and I have to start paying for my wife's tuition to get teaching credentials. All of those I plan to pay with the CC and transfer the money from savings so I can get the rewards... I just don't want to max out the credit limit.

[myself]

Originally Posted by Ronin

Great advice, thank you!

I'll see if they can increase it without doing a hard credit pull, I'm sure they will. I will be buying newer/used car soon and I have to start paying for my wife's tuition to get teaching credentials. All of those I plan to pay with the CC and transfer the money from savings so I can get the rewards... I just don't want to max out the credit limit.

I don't try to do that often either.
The funny thing is, when my wife and I used the credit card as a down payment on the car to get the points, our previous statement's bill hadn't been paid. And we were about 2 weeks into charging our regular bills which was already budgeted on the card. So we hit almost 90% utilization during that moment in time.

[poundwise]

Another factor to bear in mind is that even though not carrying a balance (i.e. - paying the balance in full each statement due date) is wise, the credit utilization ratio is based on your available credit (limit) to the balance on the card at any given time.

That is, if you have a card with a $5,000 limit that you typically charge up to $1,000 on each month but pay in full each due date, then you may think that your ratio is $0 to $5,000 or 0% but, in reality, depending on when the bureau garners data from the account, it could show a balance of $1,000; a utilization ratio of 20%.

So, my practice and suggestion is to never let my balance on a card get more than 20% at any given time. This can be accomplished by having a high limit, by using the card only for $X of purchases on average during a given month, and/or by paying payments during the cycle (as opposed to only making one payment per month.) At no time do you want to have a balance on your card that, when compared to your limit, creates a 35%+ credit utilization ratio, and you especially want to avoid exceeding 50%.

[myself]

Originally Posted by poundwise

... At no time do you want to have a balance on your card that, when compared to your limit, creates a 35%+ credit utilization ratio, and you especially want to avoid exceeding 50%.

If that's a true statement all the time, then why was I pre-approved for getting a second mortgage for an investment property, while having a 95%+ credit utilization on several of my credit cards? My debt to income (DTI) level was something like 61%, because of this. But then again, my real DTI is something like 28%. Of course, my assets (cash included, and this money was sitting in a high interest savings account) exceeded my bills, so I have also positive net worth.

I really think it's up the credit lender's discretion, and I think that they change this as quickly as the wind changes direction.

[mekish]

Originally Posted by Ronin

Also, If I ask them to increase the limit again, is that going to be an inquiry into my credit?

no i don't think they'll make another inquiry unless its been a while or if there's been some other borrowing activities.

[Ronin]

The told me there would be a credit inquiry so I told them to forget it. Instead I got one of their AMEX cards because I needed a second back up card, it came with a much higher limit.

[buzz]

Originally Posted by Ronin

Thanks for the info, I'll just leave it where its at until the randomly increase it again.

Also, Do you think the card I have is good? Or is there a better one out there?

I'd say that's a good card, and from what I hear, USAA is a good company.

[momof1in150]

Stick with USAA. They won't raise your credit score for BS reasons and are very easy to work with. DH and I both have Mastercards with them and I wouldn't have any other card but them. You are fortunate to be able to get in with them. Many non-military folks would love to have a USAA account or CC.

[Ronin]

I agree, USAA is the best banking & insurance service I've had so far, one of the best benefits I got from being in the military ... glad I could keep it after I got out too!