Rule of Thumb...Credit Card Limit

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Woody999
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Rule of Thumb...Credit Card Limit

Post by Woody999 »

What is a good rule of thumb on the credit card limit you should have? I wouldn't think it's a good idea for someone making $50k per year to have a limit of $40k nor should someone who makes $500k per year only have a limit of $1k, generally speaking. Notice I said generally speaking...I'm looking for a rule of thumb here.

My wife and I make about $250k. We rarely use our joint credit card (we only have 1) but since we can afford some bigger ticket items than we used to and our expenses have increased I feel that our current limit of $10k is too low.

We are very close to having our 6 months emergency fund and in extreme cases I guess the credit card could be used in an emergency plan. Our only debt is our house so we aren't prone to use credit cards except in an emergency plan situation.

I'm 37 and my wife is 31. Is our $10k limit too low? Do you guys have any rules of thumb here?

Thanks for your help! :beer
harikaried
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Re: Rule of Thumb...Credit Card Limit

Post by harikaried »

For your credit score, it helps to have higher limits in that whenever you do use the cards, a smaller percentage of your total credit limit is reported as used. So with this line of thinking, you should try to increase your credit limit as much as possible. However having a higher limit doesn't mean you should spend more than you were before.
Bungo
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Re: Rule of Thumb...Credit Card Limit

Post by Bungo »

$10k seems low, especially if you routinely use a significant fraction of that amount. Your credit score is penalized somewhat if you are using a substantial part of your available credit, even if you pay it off every month. I have two credit cards, with combined limits of $63k, and the largest balance I've ever had was about $6k, and I always pay in full every month. Even that amount of usage was enough for my credit score to take a minor hit for the next year or so. This reason was explicitly stated in the explanation section of the credit score report: "Amount owed on revolving accounts is too high."
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tyrion
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Re: Rule of Thumb...Credit Card Limit

Post by tyrion »

It sounds a little low to me too. Maybe it's how long you've had the card? Mine seem to have somewhat higher limits despite a much lower annual income.

In your shoes, I would call the credit card company and ask if they will raise your limit.
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Re: Rule of Thumb...Credit Card Limit

Post by Khanmots »

Never worried about it much other than once I was out of uni with a real job I asked for a higher limit than $3k :P

I think right now between my two cards I'm at around a $40k limit on roughly twice that income. But I've been at that limit for years, and obtained it when I was at roughly $50k of income.

I only put $1-2k on a month, always pay in full, etc. But having that limit available, even when my income was lower, gave me a sense of security from an emergency plan perspective. I may have 12 months expenses in my EF, but that doesn't mean that I don't sleep slightly better at night knowing I've got a large line of unsecured credit at relatively low cost (prime + 0.5% to 2%) available if I need it.

That said, I would have more than 1 CC, I have had one of mine temporarily disabled do to my bank detecting a potentially fraudulent charge and since I don't carry much cash, having a second card was quite helpful that day. I've been thinking about adding a 3rd just for a bit more redundancy.

Personally I'm not sure what the downside of a high limit would be, so long as you have control of your spending it just gives you more options for no cost.
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Re: Rule of Thumb...Credit Card Limit

Post by mlipps »

My limit is pretty close to equal to my annual income. I have a few cards right now. One I'm holding onto from college for the long history, 3 I'm using regularly for different kinds of rewards, and 2 I got for the signup bonuses. I don't think your limit makes much difference as long as you're not going to go crazy and spend it all. I do think eventually you'll find it harder to get new cards (I'm probably at that point right now), but you don't seem to be chasing rewards or bonuses so that probably doesn't matter much for you.
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Woody999
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Re: Rule of Thumb...Credit Card Limit

Post by Woody999 »

The credit card was issued by our credit union when we opened our checking/savings accts and they asked me then what I wanted the maximum to be. I told them 10K. Now my wife and I have to go back in and talk to a loan officer to get the limit raised. I don't like having to explain to someone why I want to raise our limit...sounds like we are going to do something stupid like max it out.

What should I increase it to....20k, 30k, ?

Our credit limit is both 800 + or - 20 points.

Thanks!
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Re: Rule of Thumb...Credit Card Limit

Post by German Expat »

In my opinion it does not matter what your income is if you use credit cards responsible and only put things on them that you would buy regardless of using credit cards or cash. Higher limits have the advantage to help your credit score because the utilization percentage is lower.
Our credit cards combined have probably a limit of close to 500k with the highest one being 60k on a single card. We don't need it but there is no reason to lower them either. Some cards son't have a limit (Amex Charge) or don't report the limit. When I closed a Chase card I did ask them to move the credit limit over to a different card rather then just giving it up voluntarily.
In summary it doesn't matter too much but I would try to get limits that are reasonable high so you don't have to use more then 25% of the limit at any given time.
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Woody999
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Re: Rule of Thumb...Credit Card Limit

Post by Woody999 »

So where can I get a high limit card with a low int rate? I don't want bonuses, miles or any of that stuff, just a high limit low int rate card. If I go to the visa website and enter everything in I'm afraid they will just mail me another low limit card. Then I will have to keep it for a while then call and ask them to increase the limit. I don't want to do all that.

Any ideas?
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tyrion
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Re: Rule of Thumb...Credit Card Limit

Post by tyrion »

If you currently have an investment account with Fidelity I would recommend their Amex card. 2% cash back on everything. I know you said you don't want miles and such, but you can't really complain about them depositing cash in your account, right?

Not sure on the mechanics of setting the credit limit, but mine is reasonably high (more than 10k). Combine that with your existing card and you have a higher limit, redundancy in case one card gets suspended for whatever reason, and multiple card types for different situations.
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Re: Rule of Thumb...Credit Card Limit

Post by pochax »

Woody999 wrote:So where can I get a high limit card with a low int rate? I don't want bonuses, miles or any of that stuff, just a high limit low int rate card. If I go to the visa website and enter everything in I'm afraid they will just mail me another low limit card. Then I will have to keep it for a while then call and ask them to increase the limit. I don't want to do all that.

Any ideas?
Why should it matter whether it is a "low-interest rate" card? you will pay no interest if you pay off your balance monthly which you probably should be doing anyways if you are serious about wealth-building.
harikaried
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Re: Rule of Thumb...Credit Card Limit

Post by harikaried »

Woody999 wrote:Now my wife and I have to go back in and talk to a loan officer to get the limit raised. I don't like having to explain to someone why I want to raise our limit...
Why not just say you're looking to reduce your utilization percent? If you're going to have a conversation with someone at the credit union, might as well ask how much you can increase it by (without a hard credit check if possible) assuming you're not going to change your spending behavior. If they're going to do a hard credit check anyway, and they can do it on the spot, might as well ask for the most you can get from the credit union.
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Re: Rule of Thumb...Credit Card Limit

Post by Sam I Am »

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robocop
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Re: Rule of Thumb...Credit Card Limit

Post by robocop »

If you are looking for a higher CL, I would avoid Discover and consider Chase. I have always been given a pretty generous CL at Chase, but was given a very measly CL by Discover (in comparison to all my other cc providers). PenFed, USAA, and credit unions have given me CLs above Discover, but below Chase.

As for CL vs. income, I don't think there is any hard or fast rule. As long as you can keep your utilization low, that is really all that matters. I actually have a CL that is MORE than my annual income, because I signed up for a few cards this year for the sign-on bonuses and they all gave me pretty decent CLs without me asking. Now, I actually have such a high credit limit that my utilization went to zero, because my monthly spending is such a small percent of the total CL I have. This actually reduces my credit score a bit, so I may be closing some of the cards to reduce my overall credit.
Easy Rhino
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Re: Rule of Thumb...Credit Card Limit

Post by Easy Rhino »

It's good to be able to have credit limit large enough to floast the largest conceivable purchase you could put on a card.

... think 4 first class international airline tickets
... a new car
... a new basement
etc.
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BruceM
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Re: Rule of Thumb...Credit Card Limit

Post by BruceM »

Woody999 wrote:

I'm 37 and my wife is 31. Is our $10k limit too low? Do you guys have any rules of thumb here?

Thanks for your help! :beer
It really depends on what you are trying to accomplish.

If you are trying to achieve a high credit score, as others have said, I don't think the CC limit is the principal issue. For example, DW and I have had a VISA and MC for about 30 years, and an AMEX (thru Costco) for about 10 years. Only other card we have and use is Home Depot. Credit limits vary from $5,000 to $20,000. We use them all the time, for virtually all purchases over $50. I don't think we've ever carried a balance. Our FICO scores (we got when we recently bought our Honda Pilot....and I still can't figure out why the dealership had to pull our credit scores when we paid cash) are 840 and 820.

If your objective is to have a high enough limit to be able to buy 'big ticket' items with the convenience of your card, you could have a preapproved higher limit that you can activate by calling the CC company (at least this was an option on our USAA VISA many years ago). This is a nice feature if you wish to reduce the risk of a large loss should you have your seldom-used card stolen, not know it and not get the bill.

Some think its a good idea to have a low limit card just for on-line purchases, again, to avoid the risk of a large (up to the credit limit) loss...or at least the hassel of trying to get such a situation fixed.

We have found a $10,000 limit works for us.

BruceM
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mike143
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Re: Rule of Thumb...Credit Card Limit

Post by mike143 »

Combined available credit card limit is $49.7k, I make less than that. Only use credit cards for cash back and floating purchases at 0% during the promo period.
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Re: Rule of Thumb...Credit Card Limit

Post by Nummerkins »

The answer to this has everything to do with personal restraint and responsibility.

I used to have card with limits in excess of my income. That said, I usually try to get them as high as I can. Why? It helps my utilization and demonstrates to lenders I can handle credit responsibly. For some people, available credit = MUST SPEND. It does not for me as I PIF each month.
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serbeer
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Re: Rule of Thumb...Credit Card Limit

Post by serbeer »

I don't think you need more than 10K.

That said, I usually just let CC companies set the limit, and usually end up with amounts between $3.5K and $20K.

Only once in my life I called with request to increase the limit, and that was when I was remodeling my house and wanted to get 1% CC rebate on purchase of remodeling supplies.

Don't forget that CC can reduce your limit at any time (happed to me several times, because I was not using anywhere close to the limit) so it is not reliable emergency funds source.
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Re: Rule of Thumb...Credit Card Limit

Post by JDCPAEsq »

serbeer wrote:I don't think you need more than 10K.
How would you suggest he book an $11,000 cruise? :?
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Re: Rule of Thumb...Credit Card Limit

Post by sscritic »

JDCPAEsq wrote:
serbeer wrote:I don't think you need more than 10K.
How would you suggest he book an $11,000 cruise? :?
John
Carry six cards? :)

He really needs another card. What if the one he has is compromised and has to be shut off while the company sends out another card? I probably have too many, but a number between three and six sounds about right to me.
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Re: Rule of Thumb...Credit Card Limit

Post by serbeer »

JDCPAEsq wrote:
serbeer wrote:I don't think you need more than 10K.
How would you suggest he book an $11,000 cruise? :?
John
I suggest he books $5,000 cruise instead. At least until he has full emergency fund in place.
:)
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Re: Rule of Thumb...Credit Card Limit

Post by White Coat Investor »

I've only needed a higher limit twice in my life. The first time I didn't have much income, but I called the CC company and told them I was buying a car with it and would they please raise my limit. They did. I bought the car and then paid off the bill that month. The second time I had plenty of income and was planning on using the "what's in your wallet" card overseas since they had no fee for international use. They would only give me a $3K limit and wouldn't budge. I couldn't even buy the airfare for that which was pretty annoying. They told me the limits would automatically raise from time to time. It's been 6 years and I'm still waiting for the first one.
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Re: Rule of Thumb...Credit Card Limit

Post by investor1 »

Your credit limit should be as high as possible in order to increase the gap between credit available and credit used. This will increase your credit score.

Being responsible enough to handle a high limit is a seperate issue.
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Re: Rule of Thumb...Credit Card Limit

Post by harikaried »

serbeer wrote:I don't think you need more than 10K
Credit Karma gives an "A" grade for open credit card utilization between 1-20%. So one way to look at that is to set your credit limit to 5x whatever the most you normally/expect to spend on all your cards combined. They also note that this (credit utilization %) and percent of on-time payments are the most important factors to your credit score.

If you normally charge less than $2k and pay off every month, $10k limit is totally okay.
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Re: Rule of Thumb...Credit Card Limit

Post by German Expat »

If you are worried about utilization you can also do a payment before the card officially closes so you get a lower credit used reported to the agencies. You still get the awards (cash back, miles or whatever you have).
I am probably the exception to most people here. I get credit cards for sign up bonuses mainly airline miles or hotel points to use on our vacations. Works pretty well for us but we have around 20 open credit cards (most of them just put in a drawer).
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Re: Rule of Thumb...Credit Card Limit

Post by Dan-in-Virginia »

For me, 25K is the minimum I will accept for a credit card limit. If I want to have a bunch of purchases on it, or to carry a balance for a time, I don't want my credit score shot to hell.
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Re: Rule of Thumb...Credit Card Limit

Post by grabiner »

harikaried wrote:
serbeer wrote:I don't think you need more than 10K
Credit Karma gives an "A" grade for open credit card utilization between 1-20%. So one way to look at that is to set your credit limit to 5x whatever the most you normally/expect to spend on all your cards combined. They also note that this (credit utilization %) and percent of on-time payments are the most important factors to your credit score.
And even that only matters when you need your score. If you have a $6000 limit card and charge $5000 to it, your credit score the next month will be poor, so you don't want to but a car or refinance your mortgage that month. But then, in the following month, when you pay the balance in full, and charge your usual $500 on the card, your score will go back up.
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Re: Rule of Thumb...Credit Card Limit

Post by cheesepep »

I heard carrying a balance doesn't affect your credit score as long as you pay off the balance the day before your balance is due?
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Re: Rule of Thumb...Credit Card Limit

Post by grabiner »

cheesepep wrote:I heard carrying a balance doesn't affect your credit score as long as you pay off the balance the day before your balance is due?
Your credit score doesn't care whether you carry a balance or pay it off, only what you owed on the statement date. If you pay your bill before the statement date, then the reported balance will be zero and there will be nothing due on the statement.

However, if you are nowhere near your credit limit, it's not usually necessary to do this even if you know that you will need your credit score the next month. Reporting a $500 balance on a card with a $5000 limit will not have a significant effect on your score. (The effect is nonzero with some models, such as VantageScore.)
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Re: Rule of Thumb...Credit Card Limit

Post by German Expat »

cheesepep wrote:I heard carrying a balance doesn't affect your credit score as long as you pay off the balance the day before your balance is due?
Not true, you can pay it one day before your credit card closes so it won't show on your statement.

Simple example : 10000$ limit, your spend 9000$ in the current month. Now your statement comes showing 9000$ due and it will be reported as 90% utilization and ding your credit score for high utilization. As somebody else mentioned already though this is just for the current month. So if next month your balance is only 500$ your utilization is back to 5%.
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Re: Rule of Thumb...Credit Card Limit

Post by bearwolf »

Woody999 wrote:So where can I get a high limit card with a low int rate? I don't want bonuses, miles or any of that stuff, just a high limit low int rate card. If I go to the visa website and enter everything in I'm afraid they will just mail me another low limit card. Then I will have to keep it for a while then call and ask them to increase the limit. I don't want to do all that.

Any ideas?
I think getting a second card is a better idea than just increasing the limit on your one card. If you are traveling and the credit card company shuts down your one card you are stuck. If you travel internationally it is good to have no foreign transaction fees. Capital One has a good card for that. They have a no annual fee 1% cash back card with no foreign transaction fee. We just received ours. If you spend $500 within the first 3 months they give you $100 back and increase your bonus to 1.5% for the life of the card. What's not to like.

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Re: Rule of Thumb...Credit Card Limit

Post by mlipps »

Woody999 wrote:So where can I get a high limit card with a low int rate? I don't want bonuses, miles or any of that stuff, just a high limit low int rate card. If I go to the visa website and enter everything in I'm afraid they will just mail me another low limit card. Then I will have to keep it for a while then call and ask them to increase the limit. I don't want to do all that.

Any ideas?
I've read of several people getting pretty high limits from large credit unions: Digital, PenFed, Navy, etc. I'm not sure of the interest rate on any except PenFed, which I believe is now 7.99%.
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Re: Rule of Thumb...Credit Card Limit

Post by Nukeboilermaker »

JDCPAEsq wrote:
serbeer wrote:I don't think you need more than 10K.
How would you suggest he book an $11,000 cruise? :?
John
I use my debit card for the account that all ready has the cash saved up for the trip...
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Re: Rule of Thumb...Credit Card Limit

Post by jasonlitka »

My guideline is that the limit across all your cards should be at least three times what you expect to charge across a rolling 3 month period (assuming you pay it off each month). For example, across two cards I have ~$35K in credit. My typical monthly CC spend is in the $3500-4000 range sticks me at ~10% credit utilization. This allows for plenty of headroom when the spendy months of the year come around (vacation, anniversary, Christmas) and my monthly spend doubles. It also gives me the flexibility to call up AMEX and get them to toss a promotional 0% rate on my card for 6 months if I want to spread payments out to regulate my cash flow due to unexpected expenses (such as needing a new Air Conditioner, which I will probably need next year) without having to raid the E-fund or dramatically decrease spending/savings.
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Re: Rule of Thumb...Credit Card Limit

Post by interplanetjanet »

Woody999 wrote:What is a good rule of thumb on the credit card limit you should have? I wouldn't think it's a good idea for someone making $50k per year to have a limit of $40k nor should someone who makes $500k per year only have a limit of $1k, generally speaking. Notice I said generally speaking...I'm looking for a rule of thumb here.
If you'd like some anecdotal data on what lenders are likely to do (granted, it's a shedload of anecdotal data!) then you may want to check out the forums on creditboards.com.

My own experience that I can relay is a principle that's been noted many times: higher limits begat higher limits. I had a couple of credit cards with limits all in the low to mid 4 figures, and that could be limiting at times when I needed to travel and get reimbursed or similar. I looked around and found a few banks and credit unions noted for granting high limits (PenFed, Chase and USAA topped the lists), applied and got my first 5 figure limit ($20k). Once that was reporting on my credit report, other lenders fell like dominoes and seemed willing to throw high limits at me. My total available credit is something like 35% of my gross income and that's far more than I can see myself needing (I do pay off the full balance every month).

Your $10k limit is only too low if it impairs things for you.
investor1 wrote:Your credit limit should be as high as possible in order to increase the gap between credit available and credit used. This will increase your credit score.
I don't think that this necessarily follows. There are a number of reports of lenders declining applications with "sufficient credit already extended to borrower" when the borrower has a number of very high limits with other lenders. From reports, this seems to mostly crop up when people get around the six-figure mark in available credit, though every lender will do things a little differently.
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Re: Rule of Thumb...Credit Card Limit

Post by sscritic »

interplanetjanet wrote: My total available credit is something like 35% of my gross income and that's far more than I can see myself needing (I do pay off the full balance every month).
Mine is around 75%, which means your credit limits are low in comparison to mine or my income is low in comparison to yours. I vote the latter. :)
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Re: Rule of Thumb...Credit Card Limit

Post by mmmodem »

As others have already stated, the rule of thumb for your credit card limit shouldn't depend on your annual income. It should depend on your utilization percent. For example, I have about $35k total credit card limit combined across a few cards. I use on average $2500 every month and pay it off every month. That's about 7% utilization and I still get the dreaded "Amount owed on revolving accounts is too high" every time my credit score is pulled. What is considered low utilization? I don't understand and I don't care anymore since my score just crested 800 as of last month when i did a home refinance.

My advice is to get 3 credit cards from each of the major companies. Visa, Mastercard, and Discover. (I don't care for AMEX, so few places take them where I live). This is in case one or two of the cards don't work for whatever reason and you have a backup. Also sometimes, there are special promotions. Like Discover card holders get to go to a shorter line at Six Flags Discover Kingdom. Ticketmaster had early ticket sales for VISA card holders only for a Lady Gaga concert I went to a couple years back.

Citibank was the first bank that issued me a credit card with a $200 limit when I was 16 and first got a job. Two years ago, I had to cancel the card because they started instituting fees unless you used the card regularly. However, my credit limit had ballooned to some $22,000. I never asked for it, They just extended it. If you want a high limit, that's what I would recommend.
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Re: Rule of Thumb...Credit Card Limit

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Re: Rule of Thumb...Credit Card Limit

Post by German Expat »

Confused wrote:It's been interesting seeing people's credit limit as a ratio to their income.

My income is $32,000 and my credit limit is $1,100. My spouse's income is $18,000 with a credit limit of $1,500. Our median credit scores are 805 and 752, respectively. We never use these cards. Ever. Except when my spouse used his/hers by mistake instead of the debit card and then accidentally paid it off twice. So Visa owes us $34. I don't know what to do about that.
Buy something for 34$ and case closed :-). Easier then asking them to refund the money to you.

Also it is sometimes good to use a credit card for a purchase, some offer additional warranty and with all you get additional protection against fraud. I would not buy online with a debit card.
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Re: Rule of Thumb...Credit Card Limit

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Re: Rule of Thumb...Credit Card Limit

Post by interplanetjanet »

sscritic wrote:
interplanetjanet wrote: My total available credit is something like 35% of my gross income and that's far more than I can see myself needing (I do pay off the full balance every month).
Mine is around 75%, which means your credit limits are low in comparison to mine or my income is low in comparison to yours. I vote the latter. :)
Heh, that made me think about it a bit more - I guess it's closer to 45% if I include cards I expect to cancel or otherwise get away from due to upcoming annual fees. I do chase signup bonuses at times. But, my "regular" CC stable is around 35%.

I normally charge around $2-3k/mo, so it's very considerable overkill. Big limits have been the most useful to me when I've dealt with international business travel, which can end up with 5-10x as much spending in a one month period.

-janet
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Re: Rule of Thumb...Credit Card Limit

Post by German Expat »

Confused wrote:
German Expat wrote:
Confused wrote:It's been interesting seeing people's credit limit as a ratio to their income.

My income is $32,000 and my credit limit is $1,100. My spouse's income is $18,000 with a credit limit of $1,500. Our median credit scores are 805 and 752, respectively. We never use these cards. Ever. Except when my spouse used his/hers by mistake instead of the debit card and then accidentally paid it off twice. So Visa owes us $34. I don't know what to do about that.
Buy something for 34$ and case closed :-). Easier then asking them to refund the money to you.

Also it is sometimes good to use a credit card for a purchase, some offer additional warranty and with all you get additional protection against fraud. I would not buy online with a debit card.
Is that really going to work? We've considered the possibility of just buying gas for the exact amount, but I fear that Visa will not apply our credit balance to it and we'll end up thinking they would and not bother checking the statement and then hit with late fees and ruined credit.

We only shop from reputable dealers online, such as Amazon or Newegg, so I'm not concerned with fraud. We don't get any rewards for using our cards, and it's an extra hassle to have to pay it off later. Debit cards are just simpler every way I look at it.
Yes, it will work and the balance will just go to 0. I overpaid by accident or got credits from returned items to an older card that created a balance and just used it up with no issues at all. Why should you get a late fee ? Don't you look at the statements ? Even if they don't apply it correct you can still see that on the statement and have 30 days to pay it or work with them to fix it.

On the fraud issue even reputable companies (TjMaxx, Sony anybody ?) got hacked, not saying Amazon or Newegg are in danger or do a bad job but things can happen. Also it is not just online retailers, plenty of brick and mortar stores got hammered to (TjMaxx being the biggest know case). I don't want to cry wolf here and chances of it are probably not too high but credit cards do have bigger purchase protection.

Another issue with debit cards can be with car rentals where they might hold a pretty large balance on your checking account when picking up the car. Actually had the issue in San Francisco for a bicycle rental where they put 400$ hold on the card to make sure I return it.

I do understand though that using a debit card only is a smart way to manage money since you can see anything outgoing right away and manage your account better rather then getting a month end surprise. I check all my credit cards every 2nd day to make sure there are no surprised and know their balances at each stage of the month (I use yodlee for it, mint or others will work too).
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Aptenodytes
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Re: Rule of Thumb...Credit Card Limit

Post by Aptenodytes »

For me, the main issue is convenience. We never carry a balance, so the temptation of a high limit doesn't bring with it any risk of going into high levels of debt. The fact that you list the card's interest rate as the most important criterion makes it look like you might be at risk of reacting to a high limit by falling into a high level of debt. If that's so, then the rule of thumb should be to aim for the lowest practical limit possible. Basically, you want to make it very hard to increase your credit card debt.

We have two main cards and lots of auxiliary ones. Our limit on the main family card is $30k and on my main business card is $20k. In my experience the card companies treat requests to increase limits as routine matters. Any sane credit card company would raise yours to $30-40k with little thought. Whether that would be good or bad is something only you can know. The rule of thumb for someone who doesn't carry a balance could be something like this: make the limit 50% larger than your biggest bill in a year.
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Re: Rule of Thumb...Credit Card Limit

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tyrion
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Re: Rule of Thumb...Credit Card Limit

Post by tyrion »

Confused wrote:
German Expat wrote:
Why should you get a late fee ? Don't you look at the statements ?
No, I do not. This is the first time we ever got one over the years. And it said, "Due: -$34.24. Do not send payment; this is a credit balance." We never use the card, so we never get statements in the mail.
German Expat wrote: Another issue with debit cards can be with car rentals where they might hold a pretty large balance on your checking account when picking up the car. Actually had the issue in San Francisco for a bicycle rental where they put 400$ hold on the card to make sure I return it.
Wouldn't this be a problem with credit cards as well? With our low limits, a $400 temporary hold would put a big dent in a limit of $1,100. Our debit cards are linked to our checking account, but that has a balance just shy of $30,000, so a $400 temporary hold would put a lot smaller dent in that.

I don't know, I just want my finances as simple as possible. All money coming in lands in checking. All money going out comes out of checking. A little bit each month goes into savings because we have to do that to keep the checking account free (technically, we could've stopped that a long time ago because our checking balance is over $7,500, which also keeps it free), so we've got a couple thousand there. And we've got a couple hundred dollars in a Roth 401k. But 99% of our money sits in a form as liquid as cash.

Buying a gallon of milk on a credit card, then remembering to go online later that day and transfer funds from checking to the credit card, then getting an extra letter in the mail that I have to open to make sure my credit card balance is zero, really doesn't fit my simple, cash-based paradigm.
I'm likely not going to convince you to change, and that's fine. But here's how mine works:

I have a credit card. I charge general stuff (gas, groceries, restaurants, etc) to it whenever possible. At the end of the month I get a statement (electronic in my case). A week or two after that the money is automatically deducted in full from my checking account. I can review purchases on my credit card through the same login portal where I see my bank info. And every few months the credit card deposits $50 in my checking account - 2% of all purchases made.

I get:
2% of my monthly spend rebated to me (in cash)
credit card protection on purchased items
better fraud protection vs using a debit card
the interest on the float (no much these days, but still a net benefit)
no extra mail, no extra hassles, no late fees


Limitations:
I use an amex card. I could change it to Visa and drop to 1.5% Although then I couldn't use it at Costco, where I go a lot to buy stuff (we have a family, the kids eat like crazy)
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Re: Rule of Thumb...Credit Card Limit

Post by sscritic »

Confused wrote:
German Expat wrote: Buy something for 34$ and case closed :-). Easier then asking them to refund the money to you.

Also it is sometimes good to use a credit card for a purchase, some offer additional warranty and with all you get additional protection against fraud. I would not buy online with a debit card.
Is that really going to work? We've considered the possibility of just buying gas for the exact amount, but I fear that Visa will not apply our credit balance to it and we'll end up thinking they would and not bother checking the statement and then hit with late fees and ruined credit.
Your statement starts with something similar to mine:

Code: Select all

previous balance             -34
payments and other credits     0
purchases and adjustments     34
fees charged                   0
interest charged               0
New Balance Total              ?
I left the last number blank for you. The bank's computers do addition all the time.

Your other choice is to wait. Check your terms and conditions, but my experience is that they will send you a check after about six months. Your statement also lists a phone number in case you want to ask.

P.S. Do you really "not bother to check the statement"? I check mine, whether from Vanguard, the phone company, or any other institution with which I have financial dealings.
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Re: Rule of Thumb...Credit Card Limit

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grabiner
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Re: Rule of Thumb...Credit Card Limit

Post by grabiner »

mmmodem wrote:As others have already stated, the rule of thumb for your credit card limit shouldn't depend on your annual income. It should depend on your utilization percent. For example, I have about $35k total credit card limit combined across a few cards. I use on average $2500 every month and pay it off every month. That's about 7% utilization and I still get the dreaded "Amount owed on revolving accounts is too high" every time my credit score is pulled.
That is not the result of your utilization percentage, but of the raw dollar amount. If your utilization ratio were the reason your score was lower, the reason would be "Ratio of amount used to credit limits on revolving accounts is too high." The first time I checked my own credit score, I had both reasons listed; the ratio of about 20% (fake, as one of my cards was reporting the high balance as a credit limit) was the top reason, and the fact that I owed $800 was the fourth reason.

In any case, "too high" is misleading. People most often see these explanations are when they are denied credit, and thus the explanations are written accordingly. If you are denied credit based on your score, and you could improve your score by reducing the dollar amount owed, then you were denied because your "amount owed on revolving accounts is too high." But the reasons are always part of the report, and if your score is 800 and would be 810 if you paid down the credit cards below $1000, then you will get this as one of your reasons that the score isn't higher.
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Jerilynn
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Re: Rule of Thumb...Credit Card Limit

Post by Jerilynn »

EmergDoc wrote:I've only needed a higher limit twice in my life. The first time I didn't have much income, but I called the CC company and told them I was buying a car with it and would they please raise my limit. They did. I bought the car and then paid off the bill that month. The second time I had plenty of income and was planning on using the "what's in your wallet" card overseas since they had no fee for international use. They would only give me a $3K limit and wouldn't budge. I couldn't even buy the airfare for that which was pretty annoying. They told me the limits would automatically raise from time to time. It's been 6 years and I'm still waiting for the first one.
You're lucky, I tried to buy a car ($30k) with a credit card, but the dealership wanted a check instead.
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
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