@Fernando1 wrote:Is there an ideal total credit limit proportional to one's income?
For instance, if someone has income of 100.000, what would it be his ideal total credit limit to maximize his credit score?
I don't believe there is such a thing. I've seen folks with credit limits two and three times their annual gross with credit scores up in the 800s, and other folks who have credit limits which are a tiny fraction of their annual income also up in the 800s. In my case, all of my scores are up in the 800s and if I were to interpolate the $100,000 annual income you referenced above to mine, I'd have a credit limit of about $9,500.
I don't think there's a certain dollar amount you need for good scores. But you do need to keep you utilization low for good scores. Utilization is how much you owe divided by how much credit you have available.
If you have one credit card with a $1k limit and you owe $800, that's 80% utilization. That's very bad.
If you have several cards with a combined limit of $10k, and you owe $800, that's 8% utilization. That's very good.
You still owe the same 800 bucks, but it's viewed differently depending on how much credit you have available.
A few years ago, I had less than $15k credit limit on all my cards combined. I was carrying some debt on there too, even though I knew I shouldn't. Then I had to buy a $4k transmission for my pickup and pay $1k at the dentist. That's $5k of unexpected expenses I had to add to my credit card debt that was already too high. My utilization got up around 77% and my scores stunk.
You improve your utilization by paying down the debt, obviously, but also by increasing the available credit through credit limit increases on existing cards as well as by opening new cards. My aggregate credit limit is much higher now, about 1.5x my annual income. I feel pretty comfortable there. If I had $5k-$10k of unexpected expenses pop up, I could handle it. For one thing, I'm sure I could get a bank loan to cover that and not have to carry it on credit cards. But if I did need to put it on my credit cards, it would not be too big of a deal. My scores would still be decent.
So it's not about how much credit you need for good scores. It's how much cushion do you need "just in case" so you can cover whatever comes up without it destroying your credit scores.
EQ8 780, TU8 748, EX8 771 as of January 7How do I delete my post?
My response here was not relevant to the original question.
@Fernando1 wrote:Is there an ideal total credit limit proportional to one's income?
For instance, if someone has income of 100.000, what would it be his ideal total credit limit to maximize his credit score?
No there isn't. But I have run into a couple of credit unions who will deny credit on the ground that one has too much available credit. When a credit union tells me that, I dump them, because I have no interest in having less available credit.
@Fernando1 wrote:Is there an ideal total credit limit proportional to one's income?
For instance, if someone has income of 100.000, what would it be his ideal total credit limit to maximize his credit score?
if your maximum spend on any credit card you have 30% of that card's credit limit, you'll incur less temporary credit score penalties (which go away once you pay your bill) if you don't want to make payments on your cards throughout the cycle as opposed to on the due date or after the statement has published.
Getting a ton of arbitrary credit you never plan to use might be annoying and might spook a few creditors, particularly when your income isn't "infinite".
There's no FICO mechanism, as @SouthJamaica said for total credit limit itself causing an impact to scores. Keeping per card and total overall utilization low is important, but you can ensure that by early paydowns as opposed to getting more credit.
There's also the human element: what are you going to do when given access to X amount of credit?
If you can't personally trust yourself with that much money/responsibility because an 800 credit score allowed you to get 200k in credit, don't get that credit, it's not going to hurt your credit score for not getting a lot of credit.
As others have said, some lenders look at your total available credit vs. income when making a decision to extend credit, or set your limit, etc., but it isn't part of any scoring model.
There are a few lenders that shy away from extending more credit accross all accounts with their institution than a certain percentage or multiple of your annual income, but don't factor in your available credit with other institutions.
With some, you may have to verify your income if you are asking for high credit limits.
@GZG wrote:If you can't personally trust yourself with that much money/responsibility because an 800 credit score allowed you to get 200k in credit, don't get that credit, it's not going to hurt your credit score for not getting a lot of credit.
I've been approved for 5 credit cards since my Chapter 13 was discharged nearly 3 years ago, the first was a low limit secured card and has been long since closed. Of the remaining four, the first three were applied for within the first 14 months following my discharge, where my FICO scores ranged from just above 600 to a high of just over 700, the final card was applied for after my Chapter 13 fell off my credit reports which pushed all of my scores to 820 and above. Guess which card has the lowest limit? The last one; I was only approved for a $2,000 limit. Go figure.