How do credit card companies determine how much credit to give you?

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Whakamole
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How do credit card companies determine how much credit to give you?

Post by Whakamole » Fri Jan 12, 2018 1:37 pm

I'm curious about how card companies determine the maximum limit for a credit card after trying to take advantage of bonuses. I typically don't pay very much attention to how much they've approved me for, since I don't put that much on cards and pay them off every month (same with the interest rate.) When trying to get an airline-branded card to get some miles, the company indicated that they weren't comfortable giving me any additional credit but were willing to move credit around from other cards. One of my cards had a limit of over $30K!

I'm also a bit concerned that that may somehow hamper my ability to get other credit card bonuses in the future, since this is presumably all on my credit report.

I've been told not to cancel my oldest cards and that older cards in general raise my credit score, but looking at Credit Karma my outstanding credit limit is coming close to my annual income. Is it time to start cancelling cards? Many of these I don't even use anymore - like a Capital One card that I got when they were one of the few with no foreign transaction fees.

grog
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Re: How do credit card companies determine how much credit to give you?

Post by grog » Fri Jan 12, 2018 3:21 pm

I'm not an insider and I don't know their formulas, but whenever I've applied or asked for increases, they've asked me 1) my income, 2) my mortgage or rent payment. It seems like they combine this with credit report info. I have heard they look at credit utilization metric, so presumably they are aware of your total credit limit across accounts.

I got my first card in college from Wells Fargo and I think they gave me a $1,000 limit. Then a couple years later when I was only making $15/hr, Navy Federal gave me something like $15,000 which I thought was completely crazy. I've cycled through a couple of secondary cards since and one would give me $12,500 and another only $5,000. It seems to vary considerably by institution.

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DaftInvestor
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Re: How do credit card companies determine how much credit to give you?

Post by DaftInvestor » Fri Jan 12, 2018 3:28 pm

One card recently gave me a $5000 limit while another gave me a $40,000 limit. I see no rhyme/reason to how they decide.
(The $5,000 limit was Citi Double-Cash - I never had one this low - I immediately called and said I'd cancel if they couldn't up the limit as I didn't want to even think about ever hitting the limit in a month and I certainly could so with only a $5,000 limit - they asked me how much I'd like - I said $15,000 - and that's what they gave me. Not sure how high I could have gone but I rarely spend more than $15,000 in a month so that's what I asked for).
To answer your question - I don't think there is any benefit to your score to cancel any cards (if anything it will reduce your score).

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flamesabers
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Re: How do credit card companies determine how much credit to give you?

Post by flamesabers » Fri Jan 12, 2018 5:02 pm

Unless you start having problems with getting credit cards, (i.e. creditors either deny your application or give you a much lower then normal credit limit) I wouldn't worry about this. There's no universal rule that your total credit limit cannot exceed your annual income.

If creditors start to get concerned about your total credit limit, I would suggest lowering the credit limit on your unused cards rather then close them. This way your AAOA won't get impacted in the long-term and you may never know when you might need to use these sock-drawer cards.

rec7
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Re: How do credit card companies determine how much credit to give you?

Post by rec7 » Sat Jan 13, 2018 11:32 am

For me it has been 25% to 50% of income depends on the place giving the card.
Disclaimer: You might lose money doing anything I say. Although that was not my intent. | Favorite song: Sometimes He Whispers Jay Parrack

likegarden
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Re: How do credit card companies determine how much credit to give you?

Post by likegarden » Sat Jan 13, 2018 3:55 pm

When you are retired, it seems the credit card limit will be low. We have no loans, have everything paid off, always pay the credit card on time, have a lot at Vanguard and a local bank, but only get a limit of $5k. We are using 50% of that each month every month. Some months we might have to deposit several $k to prevent overdrawing it, such as ahead of a vacation.

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