topic Re: Income and how it effects credit limits in Credit Cards

Income and how it effects credit limits

ngerasimatos — Fri, 21 May 2010 05:10:19 GMT

I have seen some people in these forums post about how they have 60k+ available in credit.

Why would creditors extend themselves so far? Are those individuals with large amounts of credit available making ridiculous income annually? I just cannot fathom why anyone would need 60k in personal credit. Maybe if it was business credit, but personal?

I am only asking because one of my friends is a contractor, 1099, and makes 60k annually and he was recently approved for an AMEX (i forgot what program) with a 25k limit, and he also has a AMEX Green for business as well. I think its insane they granted such a large credit line.

Re: Income and how it effects credit limits

Anonymous — Fri, 21 May 2010 08:27:29 GMT

Part of it is income and level of spending.

But for the most part its not about needing 60k in credit, its all about utilization. Keeping your utilization at less than 10% is very difficult with low CLs.

Re: Income and how it effects credit limits

Anonymous — Fri, 21 May 2010 12:05:46 GMT

It's sort of like going out to the bars and hanging out with your friends and NOT CARING is when you are approached by all the women (or guys)! If you act like you don't need it, it falls in your lap! LOL

Re: Income and how it effects credit limits

BungalowMo — Fri, 21 May 2010 13:55:49 GMT

@Anonymous wrote:
Part of it is income and level of spending.

But for the most part its not about needing 60k in credit, its all about utilization. Keeping your utilization at less than 10% is very difficult with low CLs.

That's not necessarily so.

The huge mistake people make (myself included, years ago) is that they view credit cards as an extension of their income! Use it up & suddenly your $600 cc balance goes to $650, they pay the $25 min, then the next mo it's $685, etc etc...then they're in a mess. The actual limit has nothing to do with util. A 10k limit with a 1k balance is the same as a $500 limit with a $50 balance. Both people post a 10% util.

Either pay in full before the statement cuts, or keep the util below 10% at statement cut, & your FICO's will be happy in this respect.

Re: Income and how it effects credit limits

Watchmann — Fri, 21 May 2010 16:18:22 GMT

@Anonymous wrote:
Part of it is income and level of spending.

But for the most part its not about needing 60k in credit, its all about utilization. Keeping your utilization at less than 10% is very difficult with low CLs.

Unfortunately that is the mindset of most people, but it is the wrong way to look at debt. Instead of shooting for a very high CL and then spending up to 10% of that amount in order to keep total util. under 10%, people should be looking to keep debt low, PERIOD. Keep the spending down in line with your income and forget about CL limits and utilization. Doing that will make you much more financially solvent.

Those with long credit histories and long, blemish free relationships with credit companies can get large credit lines. I have over $60k of credit on two AMEX cards, plus a Gold card, but since I PIF every month it really is of no consequence to me. I had a Chase card and last year the CL was cut from $33k to $8k. It had no effect on my FICO score since my untilization is close to nil in either case. Focusing on keeping your overall debt reasonable and in line with your income will bring you the most rewards, financially speaking..

Re: Income and how it effects credit limits

OptimalFICO — Fri, 21 May 2010 17:07:57 GMT

@BungalowMo wrote:

The actual limit has nothing to do with util.

I disagree and respect the point you are making, but the actual limit has everything to do with utilization - that's the formula. I charge all monthly expenses on a cash rewards card and PIF at the end of the month (the cash rewards are free money). It's also a great way to keep track of everything you spend and manage finances (especially for tax purposes). I need a higher CL so that I don't have to worry about percent of utilization. A card with a $30K CL means I can only spend $3K if I want to keep utilization at 10%. But you're right - people can easily fall prey to the credit card game of not PIF and before their know it the balance is out of control. But there are a lot of other people who smartly use credit as a tool in their wealth toolbox.

Re: Income and how it effects credit limits

MarineVietVet — Fri, 21 May 2010 18:16:06 GMT

@OptimalFICO wrote:

I disagree and respect the point you are making, but the actual limit has everything to do with utilization - that's the formula. I charge all monthly expenses on a cash rewards card and PIF at the end of the month (the cash rewards are free money). It's also a great way to keep track of everything you spend and manage finances (especially for tax purposes). I need a higher CL so that I don't have to worry about percent of utilization. A card with a $30K CL means I can only spend $3K if I want to keep utilization at 10%. But you're right - people can easily fall prey to the credit card game of not PIF and before their know it the balance is out of control. But there are a lot of other people who smartly use credit as a tool in their wealth toolbox.

That's not exactly correct. You can spend up to the entire CL during the month if you'd like. It's the amount shown on the monthly statement that determines utilization for that month. In your case you can spend up to $30,000 each month as long as no more than $3,000 is shown on your statement if you want that 10% utilization.

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Re: Income and how it effects credit limits

keikdasneak — Fri, 21 May 2010 19:52:27 GMT

Was the OP question even answered??? LOL

Re: Income and how it effects credit limits

Anonymous — Fri, 21 May 2010 21:30:18 GMT

Most of the banks will give you the limit that is 1/3-1/4 of your annual income (assuming excellent credit)

Re: Income and how it effects credit limits

MarineVietVet — Fri, 21 May 2010 21:38:25 GMT

@keikdasneak wrote:
Was the OP question even answered??? LOL

You're absolutely right. I apolpogize for the thread jacking.

Re: Income and how it effects credit limits

Marv94 — Thu, 27 May 2010 00:23:01 GMT

Is that a 'hard and fast rule' (1/4 to 1/2 of your salary) tying your CL on a new card to your annual salary?

I've never heard that bedore.

Re: Income and how it effects credit limits

ngerasimatos — Thu, 27 May 2010 00:24:28 GMT

Thats seem like a very large amount of credit if you ask me.

Re: Income and how it effects credit limits

fused — Thu, 27 May 2010 02:12:56 GMT

Actually, available credit in relation to income can vary quite a bit from person to person. In my case, I have about 35K more in available credit than I earned last year. Why is this, I'm not entirely sure. I use my cards a lot, but I'm pretty much a PIFer with very high FICO scores.

Re: Income and how it effects credit limits

Anonymous — Thu, 27 May 2010 16:52:39 GMT

@MarineVietVet wrote:

@OptimalFICO wrote:

I disagree and respect the point you are making, but the actual limit has everything to do with utilization - that's the formula. I charge all monthly expenses on a cash rewards card and PIF at the end of the month (the cash rewards are free money). It's also a great way to keep track of everything you spend and manage finances (especially for tax purposes). I need a higher CL so that I don't have to worry about percent of utilization. A card with a $30K CL means I can only spend $3K if I want to keep utilization at 10%. But you're right - people can easily fall prey to the credit card game of not PIF and before their know it the balance is out of control. But there are a lot of other people who smartly use credit as a tool in their wealth toolbox.

That's not exactly correct. You can spend up to the entire CL during the month if you'd like. It's the amount shown on the monthly statement that determines utilization for that month. In your case you can spend up to $30,000 each month as long as no more than $3,000 is shown on your statement if you want that 10% utilization.

But then you can't take advantage of the grace period.

Re: Income and how it effects credit limits

MarineVietVet — Thu, 27 May 2010 16:56:27 GMT

@Anonymous wrote:

But then you can't take advantage of the grace period.

I'm not sure what you mean here.

Re: Income and how it effects credit limits

Anonymous — Thu, 27 May 2010 17:14:35 GMT

If you have to pay off the balance each month before the statement date, you lose that 20 day grace period after then before finance charges are assessed. Also, most lenders don't let you set dates for autopay to before the statement date. In fact, I dont know of any specifically that do allow you to do that.

I have my 2 cards that carry the majority of my spending set to be paid automatically like 2 days before the due date. Anyway, this has nothing to do with credit limits, because I could care less what my utilization rate is right now. I was just saying I would never want to try to keep up with all my statement dates and paying all my cards of before then every month.

Well, anyway, OP, of course income plays a major factor in credit limits. Why do you think they ask you what your income is? Even some lenders ask for your income whenever you request a CLI.

Re: Income and how it effects credit limits

MarineVietVet — Thu, 27 May 2010 18:13:30 GMT

@Anonymous wrote:
If you have to pay off the balance each month before the statement date, you lose that 20 day grace period after then before finance charges are assessed. Also, most lenders don't let you set dates for autopay to before the statement date. In fact, I dont know of any specifically that do allow you to do that.

I have my 2 cards that carry the majority of my spending set to be paid automatically like 2 days before the due date. Anyway, this has nothing to do with credit limits, because I could care less what my utilization rate is right now. I was just saying I would never want to try to keep up with all my statement dates and paying all my cards of before then every month.

Well, anyway, OP, of course income plays a major factor in credit limits. Why do you think they ask you what your income is? Even some lenders ask for your income whenever you request a CLI.

I can pay any of my 7 CC's at anytime including the day before the statements post. I do it every month so only a few show more than a zero balance.

But we are getting away from the original question. I will refrain from further comments.

Re: Income and how it effects credit limits

haulingthescoreup — Fri, 28 May 2010 01:46:28 GMT

I * think * the original question was, why do lenders give high CL's?

IMO, it's marketing on their parts. They're not dumb, and I'd say they read forums like this one from time to time. They know how puzzled/ irritated/ offended someone is to "only" get a $1K or $3K CL, and they read the resulting advice to go apply with someone else. Consumers like high CL's because we're flattered to receiver them and/or we know that it can help our util if we allow balances to report. And consumers whose credit profiles match what lenders are looking for are going to get these high CL's, because they want this type of person to be their customer.

Even before the credit meltdown and the revelation of how little large banks care about consumers, many of us here on the myFICO forums were cheerleading for credit unions, because of their generally higher CL's. Finding that they didn't then take the opportunity to screw over customers turned out to be icing on the cake.

My total CL, including a $25K personal LOC but not including a $50K HELOC, is now $143,200 (the only reason I know the exact figure is because I checked it on my EQ report), and that's on an annual income of something like $65K. So it's well over twice my annual income. I cheerfully agree that it's ridiculous. But $92K of that figure is from USAA (a CU-like entity) and PenFed FCU, and they have me as a loyal customer for life.

I agree that it's just as easy to have 3% util on a $5K total CL as it is to have it on $100K. All you have to do is pay off your balances before they report. But from a consumer's angle, having the high total CL allows us to occasionally do the 0% BT of a big chunk of change without killing our FICO scores and thus endangering our credit when lenders panic. I've read several accounts here of members BT'ing their auto loans to a 0% offer and saving a good chunk of change in the form of interest in the process. So it gives some flexibility in managing our personal finances.

Re: Income and how it effects credit limits

Anonymous — Fri, 28 May 2010 12:11:44 GMT

@MarineVietVet wrote:

@Anonymous wrote:
If you have to pay off the balance each month before the statement date, you lose that 20 day grace period after then before finance charges are assessed. Also, most lenders don't let you set dates for autopay to before the statement date. In fact, I dont know of any specifically that do allow you to do that.

I have my 2 cards that carry the majority of my spending set to be paid automatically like 2 days before the due date. Anyway, this has nothing to do with credit limits, because I could care less what my utilization rate is right now. I was just saying I would never want to try to keep up with all my statement dates and paying all my cards of before then every month.

Well, anyway, OP, of course income plays a major factor in credit limits. Why do you think they ask you what your income is? Even some lenders ask for your income whenever you request a CLI.

I can pay any of my 7 CC's at anytime including the day before the statements post. I do it every month so only a few show more than a zero balance.

But we are getting away from the original question. I will refrain from further comments.

You're leaving out key words.

I can't be bothered with setting up payment reminders and remembering when all my cards statement dates are. I want autopay, and I want my free money for the longest period possible, even though majority of the time I have enough in my bank account to cover all the charges.

Sure you can PAY your credit cards whenever you want, but you cant have an autopay date before the statement period that will allow you to select the 'full balance' option. You could set a date before the statement date to charge an arbitrary amount, but anyway...

The high CL thing is a game. The whole credit thing is a game, lol. You can almost just assume that whatever it says on your credit profile, your real CL is like 20% of that. Lenders and consumers (at least those with rediculous limits like those) know that when you're given a 25K card, you're expected to stay at or below 5K - 10K. If you don't, you can expect CLDs from that and your other lenders. So like hauling said, high CLs do nothing for most of us but keep your utilization rate low.

But of course income also plays a major role, not in your score, but in the limits they give you. I mean wouldnt you trust someone who makes six figures more with a 25K credit line than you would someone who barely makes 25k?

The comment about it being just as easy to keep low util on a 5K limit as a 25K limit, or whatever the wording was, gets to me a little bit. It's easy to sound all high and mighty when you PIF every month, but things come up, and eventually almost everyone, even responsible consumers, are forced to rely on CCs for short term (or long term) loans for emergencies. If you haven't been in that situation, you most likely will at some point. And when you do, a 25K limit is going to keep your credit scores a lot healthier than that 5K limit.

Re: Income and how it effects credit limits

GregB — Sat, 29 May 2010 14:11:04 GMT

@ngerasimatos wrote:
I have seen some people in these forums post about how they have 60k+ available in credit.

Why would creditors extend themselves so far? Are those individuals with large amounts of credit available making ridiculous income annually? I just cannot fathom why anyone would need 60k in personal credit. Maybe if it was business credit, but personal?

I am only asking because one of my friends is a contractor, 1099, and makes 60k annually and he was recently approved for an AMEX (i forgot what program) with a 25k limit, and he also has a AMEX Green for business as well. I think its insane they granted such a large credit line.

If he is a contractor, he is probably running a larger amount through his Amex card(s) than an employed person with the same income. He is probably buying materials and other items with his business card, which are then paid by business cash flow. This good payment record has to make him look better to Amex, right?

The CC Companies want the income from the merchant fees associated with the purchases. The more credit available, the more purchases - at least on average. The interest that they get, when the inevitable cash flow crunch comes, is extra income for them.

I'm sure the CC are working at whatever makes them the most money. They are NOT your friend and are NOT doing you any favors.