topic Re: "Toy" Limits - Huge Credit Lines, What's the Point? in Credit Cards

"Toy" Limits - Huge Credit Lines, What's the Point?

JayTee1 — Tue, 26 Apr 2016 14:43:11 GMT

I'm just curious what opinions are. I just read in some other thread that someone thought $2,000 was a "toy" limit. It might be for that person if all their other cards are in the 5-figure range.

But that got me thinking ... what's the point of getting a bunch of credit cards to very high credit limits when you really can't use a substantial portion of that credit without the risk of dropping your score significantly and/or watching credit card companies reduce your limits and close your accounts (as I've read can and does happen) -- not to mention going into significant debt with potentially nasty interest payments.

I know that everyone will have different requirements for available credit depening on their personal situation -- spending habits and expenses, whether or not you have kids, income, etc.

I'm single, make $70k, and don't have much debt. For me, the most I can imagine wanting is somewhere around $7500 on a single credit card. That would allow me to comfortably spend $2500 in a single month without raising red flags, keeping my utilization at 30% or under, and that would be a pretty big month for me. A couple cards like that, and I think that's probably all I would want. Right now, I have a total of around $26k in available credit (some of which are store cards ... $4k at J Crew, which I will never, ever approach using). Eventually, my profile will change as my scores go up, and I do plan to have 2-3 higher limit cards, and that's it. As it is now, I have plenty of credit available in any given month, but I've moved all my spending to one Discover card, and it would be nice to see that limit go up from its current spot at $2300. I just got it a couple months ago, already received a CLI of $500, so I'll just be patient and hope it will grow over time. But if it gets to the range I mentioned earlier, I'd be perfectly happy.

So, what's the point of a $20k or $25k credit card if you're not really able to use that or don't want to? (Or in my case, even a $10k credit card -- what would I put on that that I would actually want to go into debt for?) Aside from bragging rights (which is irrelevant), what are good reasons for wanting such high limit credit cards?

BTW, sure, I understand if you make $500,000 a year, you're naturally spending more money. I'm referring specifically to the situation I see here where people are making my income, slightly higher or lower, and want $100k or more in available credit on cards. Why?

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

Appleman — Wed, 27 Apr 2016 01:39:03 GMT

In many ways you are correct with your assessment of the 'credit game'.

However, if you have a $25,000 line on a credit card with a 'reasonable' APR, you could revolve $2,250 as a balance on that card without exceeding 9% utilization. Sometimes there are things you may want to responsibly carry a balance for without trashing your utilization.

I will take advantage of 0% deals on occasion, knowing I will pay off the balance prior to interest kicking in. Having more credit line available allows me to safely carry a zero % balance without depressing my score for utilization.

It seems so counter-intuitive: we will give you lots of credit IF you don't use it. A game we play.

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

JayTee1 — Tue, 26 Apr 2016 15:06:38 GMT

Yes, that seems like a very good reason. I could see myself spending $5000 on furniture on a card with 0% interest and have it paid off within the interest-free period. In that case, having a very large limit would make sense. Very good point.

And yeah, I hadn't thought of the perks of carrying a $2250 balance and sitting at 9%.

OK, good reasons.

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

Repo-ed — Tue, 26 Apr 2016 15:06:59 GMT

With 4 cards over 15K each in CL, I can't afford to have a card with less. I don't need nor could I ever pay back 100K+ in CL (total CL), but now that I've gone from secured CC w/ only $250 CL to this. 2k is just silly. That being said, I'm literally talkig to Amex via chat right now to close my 3 cards with them which is $45k in all. Easy come, easy go.

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

JayTee1 — Tue, 26 Apr 2016 15:12:39 GMT

I don't understand why you couldn't afford to have a card with less. It's not like having a $10k credit card would hurt your score.

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

Anonymous — Tue, 26 Apr 2016 16:13:57 GMT

In your original post you cited 30% utilization as the number that you typically aim for. Many on this board consider that number far too high and aim for 9% or less to have the maximum positive impact on their FICO scores. If one plans to run $2500 through a card (and possibly have that balance post) they would therefore want a card with a CL of $27,750 or so. People may have several cards with high limits such as this because they switch up which card they use for different reasons over the months. Then, on top of that you have to consider a buffer for large purchases. While one may be running $2500 consistently through a card from month to month, what about if they want to use that card for a large purchase, vacation, etc. One would need a card with a $50k limit or even higher in this case in order to stay at or under 9% utilization.

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

Anonymous — Tue, 26 Apr 2016 16:17:22 GMT

@JayTee1 wrote:
I don't understand why you couldn't afford to have a card with less. It's not like having a $10k credit card would hurt your score.

You could "afford" to have a card with a $10k limit certainly, but you wouldn't be able to make a single big purchase with it (such as a new TV) without going over 9% utilization on it and possibly impacting your FICO scores in a negative way. A $10k limit card would be fine for a bunch of smaller purchases, but if someone plans on running the balance over $900 the fact is that a $10k card certainly isn't going to be ideal.

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

Berk — Tue, 26 Apr 2016 16:49:49 GMT

If I can get 10-15K MR (or Delta) points from monthly purchases and then pay the balance in full at the end of the month, why wouldn't I do that? I once tried to put the complete cost of a new car on my card only to find out it was illegal in PA. I like being able to maximize points without having to worry about coming close to my limit.

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

JayTee1 — Tue, 26 Apr 2016 17:44:14 GMT

Not if you pay it off each month. That's what I do, and sometimes that's before or after a statement cuts.

I am not currently seeking new credit, so I don't care if my utilization is 30% or 9% on a given card.

When I app for a mortgage in a few months, it will be 9% or less, but that's a one-time thing.

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

JayTee1 — Tue, 26 Apr 2016 17:42:58 GMT

@Anonymous wrote:
@JayTee1 wrote:
I don't understand why you couldn't afford to have a card with less. It's not like having a $10k credit card would hurt your score.
You could "afford" to have a card with a $10k limit certainly, but you wouldn't be able to make a single big purchase with it (such as a new TV) without going over 9% utilization on it and possibly impacting your FICO scores in a negative way. A $10k limit card would be fine for a bunch of smaller purchases, but if someone plans on running the balance over $900 the fact is that a $10k card certainly isn't going to be ideal.

You're assuming you carry a balance, correct?

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

Appleman — Tue, 26 Apr 2016 18:18:52 GMT

Correct. if you are not trying to maximize your scores, letting 50% of your CL report will likely not do any long term harm. As long as it is paid off month to month, credit cards can be a great tool.

I pesonally have a goal to get 800's across all 3 bureaus, so I micro-manage my reports.

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

Anonymous — Tue, 26 Apr 2016 18:29:45 GMT

Even if you PIF you can have a balance reported depending on when you PIF relative to when the creditor reports to the bureaus.

I sometimes get myself in trouble with this as I PIF often a week or more early, then it's not reported until 4 days after it's due so literally there's almost a 2 week span after I PIF that could get reported. Usually if I make a large purchase during this time I try to remember to log in and pay it off immediately, but sometimes I don't and am surprised when I see a balance (sometimes large) reported. As long as the CL is high enough to keep that at 9% or less though, it doesn't impact my score.

Assuming you PIF every month and don't carry balances though, this is the only way I can see it negatively impacting your score IF you don't have a high enough limit to keep it at 9% or less. Of course this would only impact your score for that month, as if it wasn't the case the following month ($0 balance reported) you score would just shoot right back up. Personally, I'd just prefer the higher CL cushion just in the event that a balance does report, or there's always things that life could throw your way that cause you to not be able to PIF for some reason one month and you don't want to have to worry about your utilization % spiking any more than necessary.

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

Anonymous — Tue, 26 Apr 2016 18:46:45 GMT

Because bigger is better.

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

Kutuzov — Tue, 26 Apr 2016 22:00:31 GMT

As said the higher the limit the les % util you show on the CR and the higher your score. I myself try to every month if the cc does a soft pull to do s cli. Today I hit the Amazon sc, they rise my cl from 2k to 6k, my wife Kanes sc from 3k to 10k. What it means is a higher score for both of us since now the 1500 balance on Kanes sc at 0% interest till August is 15% util rather than 50%. And the Christmas shopping on Amazon also at 0% interest of about 600 now it's about 10% rather than about 30%. The more cl in a cc the less I got to micro manage it and can let it report and PIF at some point before due date.

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

bada_bing — Tue, 26 Apr 2016 22:32:41 GMT

There are several memes that are common here at MyFICO that don't make much

logical sense (at least to me).

One is the quest to grow limits beyond their utility. A lot of the justification seems to center

around the idea - at least subconsciously - that a credit limit is an asset - something you own

that has value because it is denominated in dollars. But you don't "own it", it is granted at the

whims of credit issuer and it doesn't have value in the strictest sense because to use it you

trade debt for the charge. A credit limit is a tool that allows you to more efficiently use the financial

power you have, it is not financial power ($$$) in itself.

Another is the idea that managing utilization monthly/weekly/daily all the time is important,

and by extension, big limits are useful to reduce utilization percentages. Utilization and a

FICO score in general is like Schrödinger's cat, in that it only matters when someone is

looking at it. There is a difference between maintaining personal finances in good shape -

which will keep a FICO score up although that isn't the point of good personal finances - and

tweaking transient things like utilization to juice a score when there are no apps planned. A

high FICO score definitely has value but it seems strange that it is a point of vanity for some.

Of course, I'm not immune to any of my criticisms above. My lowest CL is $10K and I have a

couple at $50K. My FICO8 is 850 and I look at it a couple times a month admiringly, although

I haven't showed to any prospective lenders in over 2 years (made an application).

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

Anonymous — Tue, 26 Apr 2016 22:45:36 GMT

Nice post bada_bing. You make some very good points.

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

Loquat — Tue, 26 Apr 2016 23:18:30 GMT

@Anonymous wrote:
Because bigger is better.

Yea, what ^ said!

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

DoroLucky — Tue, 26 Apr 2016 23:38:55 GMT

Because we're obsess with credit which translates to MONEY LOL

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

Anonymous — Wed, 27 Apr 2016 00:04:49 GMT

Well, ironically, "credit" almost always means "less money" if you really think about it.

Re: "Toy" Limits - Huge Credit Lines, What's the Point?

Kutuzov — Wed, 27 Apr 2016 00:08:13 GMT

As I posted the more cl on a cc the less I have to worry about util. It only matters if I app but I rather know that I'm good all the time than having to wait a billing cycle and pay before close than plain apply.