topic Re: Total available credit vs. utilization in Credit Cards

Total available credit vs. utilization

s_haliz — Sat, 16 Aug 2014 16:01:48 GMT

Recently I have read some posts in this forum and one question came to my mind:

When you apply for a new credit card, who gets the preference (i.e. approval and higher CLI)? The one who have large total available credit limit (and low utilization of say about 3% and no more than 10% on any card) or the one with relatively lower total available credit limit but 70% of utilization.

Let say,

1. Total vailable credit is $150,000. Utilization is 3% ($4,500).
2. Total available credit is $6,000. Utilization is 70% ($4,200).

I know there would be many other factors. But let assume they are all equal for discussion purpose. Who the lender would give a preferential treatment with approval and higher CL?

Added: Who poses more risk?

Re: Total available credit vs. utilization

Anonymous — Sat, 16 Aug 2014 16:58:20 GMT

Having any cc maxed out, and 70% is high enough, is a huge red flag for any cc company and could result in denials, as well as adverse actions from existing cards.

Re: Total available credit vs. utilization

ecxpa — Sat, 16 Aug 2014 17:29:05 GMT

@s_haliz wrote:
Recently I have read some posts in this forum and one question came to my mind:

When you apply for a new credit card, who gets the preference (i.e. approval and higher CLI)? The one who have large total available credit limit (and low utilization of say about 3% and no more than 10% on any card) or the one with relatively lower total available credit limit but 70% of utilization.

Let say,

1. Total vailable credit is $150,000. Utilization is 3% ($4,500).
2. Total available credit is $6,000. Utilization is 70% ($4,200).

I know there would be many other factors. But let assume they are all equal for discussion purpose. Who the lender would give a preferential treatment with approval and higher CL?

Added: Who poses more risk?

You are kidding with this post........right? " Total vailable credit is $150,000. Utilization is 3% ($4,500)." might get a denial for something like having sufficient credit but I think would be more favored. On the other hand a good customer with high utilization.....(that pay down balances quickly) might be more likely to get a CLI. In other words showing responsible usage. However, it will make lenders look close at the application.

Re: Total available credit vs. utilization

s_haliz — Sat, 16 Aug 2014 17:48:47 GMT

@Anonymous wrote:
Having any cc maxed out, and 70% is high enough, is a huge red flag for any cc company and could result in denials, as well as adverse actions from existing cards.

I am with you as to high utilization is a great red flag. But at the same time, wouldn't lender be alarmed by high open credit avialble? Given that today user is not using but what could stop them to use if he/she choses to do so?

Re: Total available credit vs. utilization

s_haliz — Sat, 16 Aug 2014 17:47:11 GMT

@ecxpa wrote:
@s_haliz wrote:
Recently I have read some posts in this forum and one question came to my mind:

When you apply for a new credit card, who gets the preference (i.e. approval and higher CLI)? The one who have large total available credit limit (and low utilization of say about 3% and no more than 10% on any card) or the one with relatively lower total available credit limit but 70% of utilization.

Let say,

1. Total vailable credit is $150,000. Utilization is 3% ($4,500).
2. Total available credit is $6,000. Utilization is 70% ($4,200).

I know there would be many other factors. But let assume they are all equal for discussion purpose. Who the lender would give a preferential treatment with approval and higher CL?

Added: Who poses more risk?
You are kidding with this post........right? " Total vailable credit is $150,000. Utilization is 3% ($4,500)." might get a denial for something like having sufficient credit but I think would be more favored. On the other hand a good customer with high utilization.....(that pay down balances quickly) might be more likely to get a CLI. In other words showing responsible usage. However, it will make lenders look close at the application.

No kidding intended. Serious stuff.

You got great points. What I refer to high utilization here is a statement balance high utlization. Unlike many of our users that charges almost close to full available limit and then pays off before statement even cuts. Not that it doesn't get reported. As I have seen cases when it does get reported as "Highest Usage". But generally most of the users had a positive experience down the line in form of CLI with high utilization but close to $0 balance (or say 5-10%)....

Re: Total available credit vs. utilization

Anonymous — Sat, 16 Aug 2014 17:49:19 GMT

The lenders I have worked at would look more favorably upon the low utilization assumning they had the income to support so much available credit. Typically when calculating DTI the underwriter would use what the payment would be at 75% of available credit being used. This may not apply to all CC companies, but it does for the ones I have worked for.

Now for a CLI the CC company has more information to base their decision on than just the CB, and may be happy with the high utilization because they know the customer pays down the balance once the statement is received. A lender that has no relationship with the customer would have no way of knowing this.

Re: Total available credit vs. utilization

s_haliz — Sat, 16 Aug 2014 18:34:32 GMT

@Anonymous wrote:
The lenders I have worked at would look more favorably upon the low utilization assumning they had the income to support so much available credit. Typically when calculating DTI the underwriter would use what the payment would be at 75% of available credit being used. This may not apply to all CC companies, but it does for the ones I have worked for.

Now for a CLI the CC company has more information to base their decision on than just the CB, and may be happy with the high utilization because they know the customer pays down the balance once the statement is received. A lender that has no relationship with the customer would have no way of knowing this.

Thank you so much. You made great points. You also articulated both the scenarios: New Credit card with CL and CLI. My personal experience is that lenders now a days are looking file closely and manually (not in all cases though) for granting someone high CL (say $25K and above) or higher CLI (say $20K increase or so). As always YMMV for users.

Re: Total available credit vs. utilization

lg8302ch — Sat, 16 Aug 2014 19:48:59 GMT

@Anonymous wrote:
The lenders I have worked at would look more favorably upon the low utilization assumning they had the income to support so much available credit. Typically when calculating DTI the underwriter would use what the payment would be at 75% of available credit being used. This may not apply to all CC companies, but it does for the ones I have worked for.

Now for a CLI the CC company has more information to base their decision on than just the CB, and may be happy with the high utilization because they know the customer pays down the balance once the statement is received. A lender that has no relationship with the customer would have no way of knowing this.

Thanks...that is an interesting data point...ups...so it will only be be a matter of time that I will no longer get approved for new cards with my income ... sad but kind of makes sense from the risk point.

Re: Total available credit vs. utilization

s_haliz — Sat, 16 Aug 2014 19:56:37 GMT

@lg8302ch wrote:
@Anonymous wrote:
The lenders I have worked at would look more favorably upon the low utilization assumning they had the income to support so much available credit. Typically when calculating DTI the underwriter would use what the payment would be at 75% of available credit being used. This may not apply to all CC companies, but it does for the ones I have worked for.

Now for a CLI the CC company has more information to base their decision on than just the CB, and may be happy with the high utilization because they know the customer pays down the balance once the statement is received. A lender that has no relationship with the customer would have no way of knowing this.
Thanks...that is an interesting data point...ups...so it will only be be a matter of time that I will no longer get approved for new cards with my income ... sad but kind of makes sense from the risk point.

I thought you are in Garden forever....... Just kidding. I think as long as your payment history is great you should see no issue. Granted that income plays a role, but here in this forum itself we had seen cases where some gets approved for say $10K CL with one particular issuer with $25K income. But someone with $221,000 income does not get $90K limit. That person gets $30K. So if I were you I would put more weightage on paying in time, pay in full and no baddies and you would create an image of very good/excellent borrower. Just my two cents. YMMV.

Re: Total available credit vs. utilization

lg8302ch — Sat, 16 Aug 2014 20:07:04 GMT

@s_haliz wrote:
@lg8302ch wrote:
@Anonymous wrote:
The lenders I have worked at would look more favorably upon the low utilization assumning they had the income to support so much available credit. Typically when calculating DTI the underwriter would use what the payment would be at 75% of available credit being used. This may not apply to all CC companies, but it does for the ones I have worked for.

Now for a CLI the CC company has more information to base their decision on than just the CB, and may be happy with the high utilization because they know the customer pays down the balance once the statement is received. A lender that has no relationship with the customer would have no way of knowing this.
Thanks...that is an interesting data point...ups...so it will only be be a matter of time that I will no longer get approved for new cards with my income ... sad but kind of makes sense from the risk point.
I thought you are in Garden forever....... Just kidding. I think as long as your payment history is great you should see no issue. Granted that income plays a role, but here in this forum itself we had seen cases where some gets approved for say $10K CL with one particular issuer with $25K income. But someone with $221,000 income does not get $90K limit. That person gets $30K. So if I were you I would put more weightage on paying in time, pay in full and no baddies and you would create an image of very good/excellent borrower. Just my two cents. YMMV.

Your word in my ears... hope you will be right ... try to garden to 2015 as I still have 9 "new" accounts out of 11 for Fico terms... that should improve a little bit in 2015 where a few will reach that 2 year mark. ..lol

Re: Total available credit vs. utilization

bada_bing — Sat, 16 Aug 2014 22:25:11 GMT

@s_haliz wrote:
Recently I have read some posts in this forum and one question came to my mind:

When you apply for a new credit card, who gets the preference (i.e. approval and higher CLI)? The one who have large total available credit limit (and low utilization of say about 3% and no more than 10% on any card) or the one with relatively lower total available credit limit but 70% of utilization.

Let say,

1. Total vailable credit is $150,000. Utilization is 3% ($4,500).
2. Total available credit is $6,000. Utilization is 70% ($4,200).

I know there would be many other factors. But let assume they are all equal for discussion purpose. Who the lender would give a preferential treatment with approval and higher CL?

Added: Who poses more risk?

Everything can't be equal between the two profiles. The first profile almost certainly has multiple >$5k signature accounts. The first profile is almost certain to have a much longer AAoA. The first profile is much more likely to have a PIF history. Probably a larger reported income.

The first profile will have easier approvals with much higher starting limits, but less potential for later cli's .

If the algorithms work right, the risk/reward to the lender for what each profile is offered should be roughly equal. That is the premise that makes credit "fair". Whether it actually works out that way is a different discussion.

Re: Total available credit vs. utilization

s_haliz — Sun, 17 Aug 2014 00:26:41 GMT

@bada_bing wrote:
@s_haliz wrote:
Recently I have read some posts in this forum and one question came to my mind:

When you apply for a new credit card, who gets the preference (i.e. approval and higher CLI)? The one who have large total available credit limit (and low utilization of say about 3% and no more than 10% on any card) or the one with relatively lower total available credit limit but 70% of utilization.

Let say,

1. Total vailable credit is $150,000. Utilization is 3% ($4,500).
2. Total available credit is $6,000. Utilization is 70% ($4,200).

I know there would be many other factors. But let assume they are all equal for discussion purpose. Who the lender would give a preferential treatment with approval and higher CL?

Added: Who poses more risk?
Everything can't be equal between the two profiles. The first profile almost certainly has multiple >$5k signature accounts. The first profile is almost certain to have a much longer AAoA. The first profile is much more likely to have a PIF history. Probably a larger reported income.

The first profile will have easier approvals with much higher starting limits, but less potential for later cli's .

If the algorithms work right, the risk/reward to the lender for what each profile is offered should be roughly equal. That is the premise that makes credit "fair". Whether it actually works out that way is a different discussion.

Great points. Only last paragraph is somewhat unclear to me. Are you saying that let say if the lender have their own internal score (assuming based on Risk), two person with identical score should get same or almost closer to same credit limit when they had applied for a new card?

Re: Total available credit vs. utilization

bada_bing — Sun, 17 Aug 2014 05:54:55 GMT

@s_haliz wrote:
@bada_bing wrote:
@s_haliz wrote:
Recently I have read some posts in this forum and one question came to my mind:

When you apply for a new credit card, who gets the preference (i.e. approval and higher CLI)? The one who have large total available credit limit (and low utilization of say about 3% and no more than 10% on any card) or the one with relatively lower total available credit limit but 70% of utilization.

Let say,

1. Total vailable credit is $150,000. Utilization is 3% ($4,500).
2. Total available credit is $6,000. Utilization is 70% ($4,200).

I know there would be many other factors. But let assume they are all equal for discussion purpose. Who the lender would give a preferential treatment with approval and higher CL?

Added: Who poses more risk?
Everything can't be equal between the two profiles. The first profile almost certainly has multiple >$5k signature accounts. The first profile is almost certain to have a much longer AAoA. The first profile is much more likely to have a PIF history. Probably a larger reported income.

The first profile will have easier approvals with much higher starting limits, but less potential for later cli's .

If the algorithms work right, the risk/reward to the lender for what each profile is offered should be roughly equal. That is the premise that makes credit "fair". Whether it actually works out that way is a different discussion.
Great points. Only last paragraph is somewhat unclear to me. Are you saying that let say if the lender have their own internal score (assuming based on Risk), two person with identical score should get same or almost closer to same credit limit when they had applied for a new card?

"Score" usually means an assessment of risk of no repayment. That's all Fico is, a numerical assessment that you will repay your debts. It doesn't measure how much credit limit is appropriate because income and assets are not components of FICO. It is easily possible for a multi-millionaire and a minimum wage worker to have identical FICO's. Another interesting thing is that FICO is not linear, there is about a doubling of risk of non-repayment for every 20~40 point drop in FICO score. A person with an 800 score is at least 4 times less likely to default than a person with a 720 score.

The algorithms they use to determine CL has FICO as one component, but income, assets and payment-balance history are other big components. A thin file, minimum wage worker with a 720 score isn't going to get a CL anywhere close to a 6 figure earning, middle age dude with 40 accounts on his file and the same 720 score.