What is the purpose of having a lot of credit?

[axnjxn]

I've been reading about app sprees, frequent requests for CLI, and some people going for absurd amounts of credit (120k +). This particularly applies to the "app spree" I've been reading about where people will apply for a slew of credit all in one shot every 6-12 months. What is the purpose of this? Is it # of trade lines? Additionally, why do people want such large credit lines if they don't plan on carrying a balance? I mean, you really have to make a lot of money to pay down 120k in one month, right?

[Anonymous]

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@axnjxn wrote:

I've been reading about app sprees, frequent requests for CLI, and some people going for absurd amounts of credit (120k +). This particularly applies to the "app spree" I've been reading about where people will apply for a slew of credit all in one shot every 6-12 months. What is the purpose of this? Is it # of trade lines? Additionally, why do people want such large credit lines if they don't plan on carrying a balance? I mean, you really have to make a lot of money to pay down 120k in one month, right?

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Interesting question. I understand why you are asking. I can only answer for myself. A few months ago I had limited credit and was recovering from a Chapter 13 which has since fallen off my report. I wanted a certain amount of cards/credit to cover my needs and expenses plus to keep my utilization very low. I have home renovation in my future as well as a lot of travel. For the most part, I am happy with the cards I applied for and the credit limits I have. I am able to complete the home renovation over the next several years and have planned two trips for the remainder of this year with at least two more planned for next year. Keeping a good credit "flow" and a higher score will also be very beneficial for me when I purchase a new car at the end of the year. That's my story. 

[kdm31091]

People go for the CLIs to lower utilization. More credit available equals lower util which is good. However some people really do go too far with it. On a fairly average income, you can only have so much credit. A 50k limit on one card is overkill and may raise eyebrows from lenders on future approvals. Credit limit vs income is something some people forget/ignore.

Number of cards is a preference. Some people like to maximize their reward on every single purchase. To me, it becomes a pain to spread my rewards around 5 or 6 cards which is why I primarily use 1 or 2 most of the time. Outside of spending ridiculously large amounts, I dont see how someone with 25 cards ends up with meaningful rewards on any of them. To each their own though.

I think the best approach is moderation. Get cards that benefit you and your spend. Ignore what is popular. For some people 3 cards is more than enough. Others really want 15 or 20. But the more credit is available to you, the higher the percieved risk can be, so dont go too crazy with CLIs IMO. It has downsides. Utilization is only one piece of the puzzle.

[baller4life]

For me personally having large credit lines will help with utilization if I ever did need to carry a balance. It will keep util very low. Therefore having minimum affect on my scores. The saying is very true that when you need credit you won't be able to get it. So having large limits already is reassuring to me. Just because I have high limits CERTAINLY doesn't mean I have to use it all. It's there IF I need it.

[Anonymous]

Bragging rights, apparently 😂

[takeshi74]

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@axnjxn wrote:

I've been reading about app sprees, frequent requests for CLI, and some people going for absurd amounts of credit (120k +).

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Be careful assuming that what is "absurd" for you is absurd for eveyone else.  Goals and priorities vary.  Budget and spend vary.  120K+ may be absurd for you but may not be for another.

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@axnjxn wrote:

I've been reading about app sprees, frequent requests for CLI, and some people going for absurd amounts of credit (120k +). This particularly applies to the "app spree" I've been reading about where people will apply for a slew of credit all in one shot every 6-12 months. What is the purpose of this?

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App sprees originally started as an attempt to avoid the impact of hard pulls but these days hard pulls are instantly reported.  There is still some potential benefit to an app spree since new accounts do not immediately report.  When a new account does report it can lower AAoA.

Some sprees are done just because people are past gardening and at a point where their credit supports new accounts and they're excited to get out there.

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@axnjxn wrote:

Additionally, why do people want such large credit lines if they don't plan on carrying a balance? I mean, you really have to make a lot of money to pay down 120k in one month, right?

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You should really start with the standard factors:

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

And then read up and understand how reolving utilization impacts scoring and risk assessment.  The link above does not cover this but the second biggest factor is Amounts Owed and revolving utilization plays a significant role.  Standard advice is do not exceed 30%.  However, there is also the recommendation that if one wants to eke out every possible point when applying for new credit then one should allow only one balance to report at 10% or less because the scoring models favor lower utilization and fewer balances.

Given that, one wants the lowest possible utilization.  One can pay down balances prior to the report date for each card to manage reported balances and utilization.  One can also obtain higher limits.  I don't do any maangement and my spend and limits place me at about 8% utilization.  If my limits were lower my utilization would be higher.

Don't consider limits simply as how much you think you need to cover spend.  If your limits only cover your spend then your accounts will report with 100% utilization.  At 90%+ an account is generally considered maxed and you're double dinged for it.  However, you can get into trouble well before you reach that point.  Even a much lower level of utilization for a prologned time can lead to adverse action from your creditors.  Keep your revolving utilization as low as reasonably possible for your preferred credit management style.  10x your spend is and ideal starting point for limits but not everyone's credit support such limits and not everyone is comfortable having such exposure.

Utilization can be severely constricting.  Here's an experience I had several years ago.  I was over 60% and applied for a Chase Slate because I figured that a balance transfer card would help.  This was before I started any research into credit.  I was approved but received a $2K limit and the highest APR offered.   6 months later, after reading up about credit, I had my utilization down below 10%.  Chase then instantly approved me for 2 new cards with $25K limits each and the lowest APR's on cards that had APR ranges.  I'm not saying that your credit supports getting such limits or APR's.  I am just demonstrating how constricting utilization can be.  One can get approvals with high utilization but one is probably going to see low limits and high APR's.

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@axnjxn wrote:

I mean, you really have to make a lot of money to pay down 120k in one month, right?

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Don't conflate credit and debt.  They're two different things.  You don't have to use all your avaialable revolving credit.  Nor would you want to for reasons stated above.

[axnjxn]

Thanks for your input, everyone. I guessed that utilization might have something to do with it, but was thrown off seeing people talking about high credit lines and not carrying a balance at all.

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@baller4life wrote:
For me personally having large credit lines will help with utilization if I ever did need to carry a balance. It will keep util very low. Therefore having minimum affect on my scores. The saying is very true that when you need credit you won't be able to get it. So having large limits already is reassuring to me. Just because I have high limits CERTAINLY doesn't mean I have to use it all. It's there IF I need it.

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Ah, this makes a lot of sense. Gathering credit when times are good is a way to prepare for any possible bad times when credit wouldn't be given readily (especially when you need it). This particularly explains why I see people talking about 100k+ limits and not carrying balances. 

[black_citi]

One reason is to keep UTL low. The more credit you have, the more you can spend while still maintaining a low UTL. They want the maximum FICO score. Others may do it as a hobby. Me personally I feel somewhat like they do. I don't need lots of credit but I do want it since it doesn't cost me much (not counting AF cards). 5 credit cards are my limit once I get the ones I want.

[kdm31091]

Right but keeping util low is only so important, considering it has no memory month to month anyway and unless you are maxing out cards the scoring difference is not always much.

Im not saying one shouldnt have a buffer, but 5 cards with 50k limits is not a reasonable buffer. Thats not directed at you, baller, or anyone specific, its an example

One should have a buffer for emergencies yes. But there is no need to go crazy and have several times your income available in credit. Youre asking for lenders to keep a very close eye if you go too far. There has to be a balance of a buffer vs not having far far more than you need. And I say it a lot but cards shouldnt be counted on as your only defense against emergencies considering we do not even own the money.

[Anonymous]

Utilization only matters so much unless you are getting deeper in debt.