Credit Limit Too Low

[CreditBob]

I had asked this question before and many felt that having any kind of credit limit had nothing to do with my score. So I wanted to copy & paste the message that I got from Experian to shed additional light on the subject. Let me know your thinking on this post. Last billing cycle the limit on one card was $ 610 & the second card is $ 950 for the credit limit. So now the one card will stay at $ 950 & the second credit card will have a credit line increase from $ 610 to $ 1,500.

Average credit limit on recently reported open bankcard accounts is too low

Your report shows the average credit limit amount across open, recently reported bankcard accounts, such as a Visa or Mastercard, is too low. Having low credit limits can have a negative impact on your credit score.

[Anonymous]

Interesting post above.  ACL (average credit limit) from what I understand can matter for LexisNexis, but for FICO scoring models I've always been under the impression that it doesn't.  Hopefully the other can weigh in on this.  What I don't see anywhere in the cut and paste you provided is "FICO" mentioned, so my belief is that ACL doesn't necessarily impact FICO scores.

[NRB525]

Keep in mind, they have to give you up to four of these Reason Codes. Those codes do not always provide actionable information.

Average CL Too Low rates as one of the more useless codes they could give you. 

Please list out all the reason codes they gave you. 

[iv]

Dollar amounts (vs percentages) of limits don't have any effect on the commonly-used FICO models (there may be other, more niche products from FICO that factor that in).

But other models certainly do include the absolute dollar amount of limits - VantageScore and LexisNexis Auto/Home scores both clearly factor in high and/or average limits.

What's the score model associated with the message you pasted? VantageScore? Experian National Equivalency Score?

[Anonymous]

A lot of the time, you have to read into or think about reason codes a bit.  The more I think about the statement you provided, it doesn't necessarily mean that the low limit itself is negatively impacting score:

"Having low credit limits can have a negative impact on your credit score."  That's the statement you were provided.  To me, that statement could be expanded to this and actually make sense:

Having low credit limits relative to your balances can raise your utilization, therefore having a negative impact on your score.

Say you owe $150 on a credit card.  If the limit is $300, you're at 50% utilization.  If your limit is $2000, you're at 7.5% utilization.  In looking at these numbers, one could make the argument that having a low credit limit ($300) can negatively impact score, but the problem isn't the limit, it's the balance.  If that person takes their balance down to $20, their score would be the same as the other person with the $150 balance on a $2000 limit line, all other things being equal.  The issue here isn't the low limit, it's the balance [relative to the limit].

[CreditBob]

The explanation came up from Experian after the following happened with the utilization percentages. On one card is at 1% & the other one is at 3%. So before it never came up. The only way to really find out is wait until March 12 when the new line of credit increase is updated. I just wanted to see if any other member had experienced this. I have also had mortgage lenders tell me that a credit line increase increases the score.

[CreditBob]

Experian

[iv]

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@CreditBobwrote:

Experian

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Experian is a CRA, not a score model...  What score model did that reason code come from?

FICO 8? (Not likely, that's not a valid reason code there)

Experian National Equivalency Score? (Maybe... don't have their reason code list handy, but it's a meaningless score...)

VantageScore 3 or 4? (Quite likely - VS does have that sort of reason code)

[RobertEG]

Credit limits can affect scoring only to the degree that if one charges the same amount, the % util will be higher on the card(s) with lower credit limits.  A $60 charge on a $300 CL card is 20% util, but would only be a 2% util on a $3,000 CL card.

Thus, higher CL provides a cushion against higher % utils if you are not carefully tracking your monthly balance.

Fair Isaac has explicitly stated, such as in their regulare webinars held several years ago, that it uses % util, and not CL, as indication of revolving account util scoring.

[Anonymous]

Hey CreditBob.  You can help us understand what is going on if you tell us as many details as you can about where you are getting this information.  We realize that you are saying it is coming from Experian.  But that might mean....

(1)  A credit card that is giving you a credit score, and it says the score is based on Experian data.

(2)  A web site that is giving you a credit score, and it says the score is based on Experian data.  Credit.com is one example:

https://www.credit.com/

(3)  A product purchased from Experian.com that is giving you a credit score.  Here is an example:

https://www.experian.com/consumer-products/vantage-score.html

In all three cases, the score could be a non-FICO score, such as VantageScore or the Experian National Equivalency Score.  If it is not a FICO score, then it certainly could be the case that the size of the credit limit, apart of % utilization, could matter.  If it is a FICO score, then all the info we know of would argue against that -- FICO is not suppose to consider CL size (taken by itself).

Can you tell us as much as you can about how you are obtaining these reason statements?  (I.e. "Average credit limit on recently reported open bankcard accounts is too low")