@Anonymous wrote:
I never really thought about this until today, as over the years I've usually paid not only my statement balance, but my current balance a couple of days before my due date. For someone that does float a balance and does a monthly PIF of their statement balance, if they're using 50% of their credit limit they're going to be maxing out the card almost every cycle, assuming multiple payments aren't made. I've never run into this issue until this month, so I guess I never thought about it.
Take a $10,000 limit card for simple numbers here. Someone makes $5000 in purchases, utilizing 50% of their limit. Their statement cuts and $5000 reports as the balance. Next month they PIF the $5000 previous statement balance come the due date, but not before making another $5k in monthly purchases, bringing them up to their $10k limit. It would seem to me that their $10k limit card is effectively a $5k limit card at this point, as the card holder can only make $5k in purchases every month. Again, this is assuming multiple payments aren't made.
Am I looking at this the wrong way, or does it make sense? I guess my point here is that if someone consistently makes purchases in the amount of 50% or greater of their credit limit every cycle and they like to float a balance, they more or less need a CLI to keep things comfortable.
You can't say it's effectively a $5k card without also making the assumption that the original $5k somehow vanishes from the equation once that first statement is cut. It hasn't. It's still a $10k limit card, it's just that the person is using half of that limit until the pay the bill (PIF or otherwise). If you spend $5k a month but wait until the last day to PIF the statement, you effectively carried a $5k balance for up to a month, thus using half your limit.
On the other hand, if the statement cuts on the first of the month and you pay the bill on the 2nd of the month, you'll have the $10k limit for use in spending that month.
In reality, it's usually somewhere in-between these two extremes. I often spend about the same amount on my card each month and my total balance rarely exceeds about 125% of that value. In your example, I spend $5000/month but my balance only gets about as high as $6250, and I'm still only making one payment per month right before the due date. That's because by the time a payment is due on the $5000 I spent last month, I've spent about another $1250 toward this month's $5000.
If my spending pattern was such that I made a single large purchase of $5000 right before the statement date and it didn't get put into next month's statement, then I will have a situation where that $5000 doesn't come due for 2 months, and that's when I would run into your example. Even then, I'm still technically carrying a balance - I just manipulated the timing such that I maximized the amount of time I had to pay for it before interest starts accruing.
If someone likes to carry a balance (that reasoning is best kept for another thread), they will need a larger limit. Otherwise, a single payment per month still works fine in most circumstances and the person will be in no danger of hitting their limit.
