topic Re: Reasoning behind high CL's in Credit Cards

Reasoning behind high CL's

dynamicvb — Thu, 09 Aug 2018 14:39:48 GMT

I've been around these forums for a few months now and I'm loving all the great advice. I've made some progress on my scores and will make more. The one thing I just don't seem to quite get is the reasoning behind having 100K or more in CC credit limits.

I understand that the higher limits then the higher balances you can carry and still keep your utilization low. Everyone knows low utilization helps your scores, but this also seems risky to me. Utilization has no memory between months and if you are able to PIF every single month, then that is great. But we all know life happens. Cars break down, accidents happen, whatever. Its great to be able to swipe a card and take care of those types of things, but then you are left with that balance, that you probably have not budgeted for.

This is where I get concerned. I went for years without any cards and I managed to get through these types of situations anyway. Although now it's easier as I have a credit line to cover those unexpected expenses. My air conditioner went out on my car and I've just been dealing with it for over a month as I did not want to spend the cash as I'm working on building back up my reserves. I was expecting maybe a 3-400 dollar bill, but the quote was 1200+. I found my self-saying okay go ahead and by the way do you guys accept Discover.

Now $1200 is not a lot and I can pay it off within a month or so without really touching my current reserves, but it will put a dent in me rebuilding the reserve after the money I spent buying a home last month for a couple of months.

Anyway, this got me to thinking about how a lot of people work towards getting these huge credit limits and I have been thinking that should be my goal too as I continue to rebuild. I'm starting to rethink that. Credit cards are what got me into trouble originally( or my not so smart use of them) and that is true of a lot of people here. Almost everyone in the BK forum always lists a huge CC debt as one of the things that they burned a credit with and lots of the time, they have stated not being able to make the payments is what started the path to BK.

It's easy to make a decision to just swipe a card when there may be other options available, so I see this as a risk to my future. I'm still going to put my car repairs on the discover just to get the cash back, but I'm also going to just pull the payment out of my reserves for now and not carry a balance for a couple of months like I planned.

So to my question. Is there any reason for having this much available credit other than perhaps bragging rights in terms of scoring? I can see having the 3 cards and do the AZEO method for a temp score boost, but really if you have 3 cards with 15K CL and carry a 1-3% utilization, the score wise I don't see how having 20-30 cards with 150K and a 1-3% utilization will do anything different for your score. I just see more risk if you do have an unexpected problem and you may not think of the best ways to solve it without incurring debt. What am I missing here?

Re: Reasoning behind high CL's

Anonymous — Thu, 09 Aug 2018 14:46:41 GMT

I tried to get high limits when I first started my rebuild as I had a charge-off reporting with a balance so it was bringing down my utilization even though it wasn't a current account. But yeah once you hit a certain amount it really doesn't matter anymore.

My strategy is to put 1k on a zero interest offer for a year at the begining of the year and pay it off at 100 a month. That way I always have a small balance report. On my active cards I pay before statement closes. I wouldn't have anything report but FICO penalizes you for not having any balances.

Re: Reasoning behind high CL's

AverageJoesCredit — Thu, 09 Aug 2018 14:50:30 GMT

You summed up alot about why people have 100k in credit in your own post. This thread will start the inevitable defensive replies or I only need 3 cards because i pif defense. Prepare yourself for it but hopefully everyone keeps it FSR.

My only partake will be your comment on perhaps bragging rights. This is a misconception and i firmly believe most of us with 100k in credit dont do it for bragging rights. Just be wary throwing around that term because if i commented on it , there are bound to be multiple people here who would too.

Re: Reasoning behind high CL's

Anonymous — Thu, 09 Aug 2018 14:57:47 GMT

@AverageJoesCredit wrote:
You summed up alot about why people have 100k in credit in your own post. This thread will start the inevitable defensive replies or I only need 3 cards because i pif defense. Prepare yourself for it but hopefully everyone keeps it FSR.

My only partake will be your comment on perhaps bragging rights. This is a misconception and i firmly believe most of us with 100k in credit dont do it for bragging rights. Just be wary throwing around that term because if i commented on it , there are bound to be multiple people here who would too.

While "bragging rights" is perhaps too strong, I think a lot of it is group think: Everyone here seems to have XXXX in total cl, so I probably should work towards that as well

Re: Reasoning behind high CL's

Brian_Earl_Spilner — Thu, 09 Aug 2018 15:02:11 GMT

You kind of answered your own question. If you only have $2000 in credit and get a $1000 auto bill, youre now at 50% utilization. If you had $5000, you'd be at 20%, $10,000 would be 10% and so on. The AZEO (All Zero Except One) method is the best way to maximize your score and you need to be below 8.9% utilization to get the benefits. That means, if you had a $1000 auto bill, you would need $11,175 in available credit to still have the best score possible. That number goes up the more you charge each month, which isn't a problem if you pif, but if you need to carry a balance for any reason, your score takes a hit. Why would you carry a balance? If you have a 0% rate on a card, why not? Also, if you have any other unexpected costs suddenly come up such as a funeral or medical which can be pricey, having a huge buffer keeps your score up.

Re: Reasoning behind high CL's

Anonymous — Thu, 09 Aug 2018 15:04:45 GMT

My reasoning is this and it's twofold.

For one, Different income brackets create different expenses for people. You had a car expense that hit you for 1200, someone with a luxury brand may have a cost for 5200. If your income gets into that high end phase an you are spending on youself accordingly (as you should and any rational person does) things get more expensive and having those high CLs are super helpful.

That's just one reason, and it vaguely skims your question because you brought up 3 cards 15k vs 20 cards with 100k+

For me, I think pursuing those higher limits is a sign of ambition, not wanting to be told you can only put out 15k at one time in contrast to 100k. There's a flaw in the thinking there, but it stems beyond that. Someone with a 30k income probably won't get a higher TCL than 60k. Being able to cross that threshold once you approach it is an ego boost, it's tangible proof that you've achieved more than you previously have. For example, as a student with a 25k income my credit only pushes so far. After law school, let's say my income is 100k, even though I may not feel the effects of that income for several years due to students loans, new other expenses, my credit line will increase substantially. I likey won't use it, but to me knowing I now have the abillity to put out 100k+ at a moments notice just makes it feel like you've really accomplished something special. It's one of those things in life that some people don't care about and hence alot of people are content with 15k and that's perfectly acceptable. For someone like me that likes to see my efforts firsthand, I just feel like all my ambition to build and improve pays off.

Everyone has a goal, for some people it's building up poor credit to good/great/excellent credit. For others, it's security, percieved financial power, or even as Joe said, "bragging rights"

Re: Reasoning behind high CL's

Anonymous — Thu, 09 Aug 2018 15:09:16 GMT

@Brian_Earl_Spilner wrote:
You kind of answered your own question. If you only have $2000 in credit and get a $1000 auto bill, youre now at 50% utilization. If you had $5000, you'd be at 20%, $10,000 would be 10% and so on. The AZEO (All Zero Except One) method is the best way to maximize your score and you need to be below 8.9% utilization to get the benefits. That means, if you had a $1000 auto bill, you would need $11,175 in available credit to still have the best score possible. That number goes up the more you charge each month, which isn't a problem if you pif, but if you need to carry a balance for any reason, your score takes a hit. Why would you carry a balance? If you have a 0% rate on a card, why not? Also, if you have any other unexpected costs suddenly come up such as a funeral or medical which can be pricey, having a huge buffer keeps your score up.

Right, this is the standard explanation, but you have to ask "Do I always need the best score?" Probably not. Assuming you can always PIF (and if not, that's a bigger issue to address) you can do AZEO only when needed for a critical app, and let things report as they will at other times.

Now having very high CL DOES allow you to not do AZEO (and not doing it is good!) when apping for something important, as utilization will be small, but how many people here wouldn't do it anyway "just to be safe"

Re: Reasoning behind high CL's

Anonymous — Thu, 09 Aug 2018 15:39:02 GMT

@AverageJoesCredit wrote:
You summed up alot about why people have 100k in credit in your own post. This thread will start the inevitable defensive replies or I only need 3 cards because i pif defense. Prepare yourself for it but hopefully everyone keeps it FSR.

My only partake will be your comment on perhaps bragging rights. This is a misconception and i firmly believe most of us with 100k in credit dont do it for bragging rights. Just be wary throwing around that term because if i commented on it , there are bound to be multiple people here who would too.

I have over 200k in limits and I am not trying for them. Other than asking for a CLI on a NFCU card I have not seeked limits and have actually asked for decreased limits on some cards. I only know my total limit because Credit Karma shows me my total limit.

Re: Reasoning behind high CL's

Anonymous — Thu, 09 Aug 2018 15:38:01 GMT

I've actually thought, on and off, about what sort of total amount of revolving credit I'd be satisfied with. Right now I'm at $81,100, but over 10 cards that breaks down to an average of $8,110. Obviously, the more cards one has, the more work it takes to keep them all in good order, keeping them all paid on time, watching utilization, etc. I have to say that I think I'd rather have fewer cards with a higher individual CL, so that, for instance, I'd have six cards with an average CL of $13,500 or four cards with an average CL of $20,275 to keep my revolving credit at its current total. The mix also matters - for instance, I'd gladly trade my Overstock store card, which has a $8,800 CL right now, for a major bankcard with more or less the same CL and a decent rewards structure. I'll certainly concede that I like having good CL's in order partially to keep overall utilization down, of course.

Re: Reasoning behind high CL's

Anonymous — Thu, 09 Aug 2018 15:45:23 GMT

Here we go again

My reason for pursuing high credit limits is simple. Its because I can. Perhaps its a function of experience but one thing I've learned, and which has been reinforced as an active participant in these forums, is to worry about my own actions and decisions and not worry about what others are doing, especially when their actions don't affect me directly.

Re: Reasoning behind high CL's

SBR249 — Thu, 09 Aug 2018 15:45:48 GMT

@dynamicvb wrote:

I was expecting maybe a 3-400 dollar bill, but the quote was 1200+. I found my self-saying okay go ahead and by the way do you guys accept Discover.

I think that there is a key sentence. Having high available credit does not mean that one is automatically unconcerned about spending. On the contrary, lenders are willing to extend high CLs precisely because a borrower has shown through their actions and history of creditworthiness that they are careful about managing their money and not spending beyond their means. I don't want to turn this into a lecture, but I will just say that I personally budget for every $ I spend and whenever I swipe my card I will already know exactly where that money is going to come from and when I will pay it off.

You might ask what about unexpected expenses, and the answer is I (and from what I gather, you as well) have reserves for that as everyone should. Your next question might be, what if those unexpected expenses exceed your reserves? The answer is, I either work out a way to pay for them (even if that means taking on debt if it's that important) or not incur those expenses. The point is that when you have to spend that money, you have to spend it. If you have the CL, then that's a buffer for you when stuff hits the fan. A good question to ask yourself is, if you must foot that unexpected expense and you don't have the CL buffer, what do you do then? Chances are the alternatives you can think up are likely not better if not worse than CC borrowing. It all comes down to having the proper perspective on how and when to use your credit.

Re: Reasoning behind high CL's

Anonymous — Thu, 09 Aug 2018 15:50:46 GMT

I purchased my first home in December. With that, I needed a new fridge, new dishwasher, a washer and dryer, and some other minor improvements. I also hurt my back a couple summers ago and have been dealing with back pain from cheap mattresses. Having a high overall cl allowed me to spend $10,000 in one month and not take my utilization above 15%. Now that’s paid down to about $4,000... and I’m not concerned because the mattress firm card is 0% interest for like 50 months and the Lowe’s card is 0% for another 12, so I can widdle it down with a couple hundred every month and keep money in the bank and plenty to invest with. A higher overall cl keeps my credit score in the excellent range, and it saves me money in the long run.

Re: Reasoning behind high CL's

dynamicvb — Thu, 09 Aug 2018 16:04:09 GMT

Thanks for all the responses. This one got busy quick. Perhaps I had a poor choice of words with bragging rights.

So it seems the consensus is that it gives you options and I totally agree as that was the only reason I could think about. I make decent money and could work towards these types of limits, but I’m just not sure it would be the right move for me. I was not intending to make this in anyway negative about what anyone else may do. Everyone must take their own path. I was just wondering if there was some secret sauce or help to your overall scores that having high CLs may provide you and from what I can gather this would only be true if you did need to carry a large balance for a while then you would not take as much a hit for your utilization.

Re: Reasoning behind high CL's

Anonymous — Thu, 09 Aug 2018 16:14:48 GMT

If you were to ever need say a personal loan, I can see a high credit limit card helping by showing that you can manage money well. But if you need a loan for $10k, and your cards only add up to $7500, it may not be looked at as positive as say $50k total, especially under a manual review.

Re: Reasoning behind high CL's

Schwartzinator — Thu, 09 Aug 2018 16:19:53 GMT

There is no right or wrong answer here, but there are some responses likely to be more logical than others. Personally, I think this would be a question better served for the general public than for the participants of the MF forums. The fact that everyone here (presumbly) knew what AZEO was without having to pull up a dictionary is a testimet to that. We fixate on ideal utilization rates, reward redemptions and interest rates even though we might always PIF. Why? likely because it's something we're passionate about for any number of underlying motives (sticking it to the bank, getting free travel, etc) and we're therefore far more likely to manage these limits responsibly. While I only have 3 cards--a number on the lowerend here, I would want them to have as high a limit as my profile supported. As someone else mentioned, it's a reflection of my responsibility to manage credit (good feels), while serving as a 30 day interest free loan to pay for the expenses I buy anyway without having to dip into my accounts until the due date. Additionally, it's an emergency fund if my reserves ran out or couldn't cover some unforseen event such as a massive medical bill for myself or a partner where their immediate health is more important than any debts or credit scores. In short, I'd rather have it and not need it, than *need* it and not have it.

Re: Reasoning behind high CL's

Brian_Earl_Spilner — Thu, 09 Aug 2018 16:29:56 GMT

@Anonymous wrote:
@Brian_Earl_Spilner wrote:
You kind of answered your own question. If you only have $2000 in credit and get a $1000 auto bill, youre now at 50% utilization. If you had $5000, you'd be at 20%, $10,000 would be 10% and so on. The AZEO (All Zero Except One) method is the best way to maximize your score and you need to be below 8.9% utilization to get the benefits. That means, if you had a $1000 auto bill, you would need $11,175 in available credit to still have the best score possible. That number goes up the more you charge each month, which isn't a problem if you pif, but if you need to carry a balance for any reason, your score takes a hit. Why would you carry a balance? If you have a 0% rate on a card, why not? Also, if you have any other unexpected costs suddenly come up such as a funeral or medical which can be pricey, having a huge buffer keeps your score up.
Right, this is the standard explanation, but you have to ask "Do I always need the best score?" Probably not. Assuming you can always PIF (and if not, that's a bigger issue to address) you can do AZEO only when needed for a critical app, and let things report as they will at other times.

Now having very high CL DOES allow you to not do AZEO (and not doing it is good!) when apping for something important, as utilization will be small, but how many people here wouldn't do it anyway "just to be safe"

I'm a strong supporter of that. I feel people on here micro-manage their credit a little too much. If you're using it responsibly, applying for new credit shouldn't be problem. On the other hand, there are people like me that need to micro-manage due to rebuilding.

Re: Reasoning behind high CL's

K-in-Boston — Thu, 09 Aug 2018 16:30:41 GMT

Several have hit the nail on the head. The primary reason is simply because I can and I expect it. The secondary reason is that I like rewards, and as I recently found out several months in a row, even with what most here would consider to be a large credit line on my Amex SPG card, I kept exceeding the credit line when adding new charges to the statement balance. It really comes down to how much one spends on a regular basis. Unless it's a card for a very specialized purpose (like the Target card that I only use at Target), a card with a small limit is absolutely useless or difficult to use (looking at you, Citi Premier) for me.

Re: Reasoning behind high CL's

Kforce — Thu, 09 Aug 2018 16:39:53 GMT

As many have said it depends a great deal on your income and spend.

Personal opinion as to a credit limits value, and risk potential.

I only take auto or SP increases until I hit my number.

Call and have my account capped/locked at that level when reached

Just my opinion, and one way of setting a number.

Single credit card = Monthly gross Income

Would lower or stop getting more credit if I hit total credit line >= Yearly Gross.

Maybe my formula will work as a middle ground between the extremes

Re: Reasoning behind high CL's

Remedios — Thu, 09 Aug 2018 16:50:45 GMT

I thought " Why you have such high limits" thread was scheduled for 10/01/18

Here is to hoping " Why you have so many cards" gets rescheduled, too.

Re: Reasoning behind high CL's

Kforce — Thu, 09 Aug 2018 16:56:56 GMT

@Remedios wrote:
I thought " Why you have such high limits" thread was scheduled for 10/01/18
Here is to hoping " Why you have so many cards" gets rescheduled, too.

They have the same answer :

Because I can and want to.

Not the same thing as bragging rights