Should I accept a limit increase?

[Anonymous]

Brand new, lots of questions. But first- I got a letter in the mail offering a spending limit increase. I have 3 cards open and zero balance on all three. My only other debt is my auto lease which is 60% paid. I don't know what my real score is but my credit card companies (Capital One, Citi, and US Bank) give me a score estimate which ranges from 760-809.

Last month I pulled my annual credit reports and everything looked fine. However, my score seemed to have dropped 5 points. It was a soft inquiry, so I'm not sure why that happened. Is that normal?

Anyway, my Capital One spending limit is 500 and I don't use any of it. I've had the card open for about 3 years.

My Citi spending limit is I think 2,250 and I don't use any of that either.

My US Bank spending limit is 5,000 and I stopped using that in August.

US Bank offered me a spending limit increase up to 10k. I want to do that, to increase my debt utilization ratio- am I using the right word? But I am planning on getting a mortgage in about 2 years and I wanted to make sure that will positively affect my credit in the long run instead of negatively. I also don't want to see my score drop anymore.

Also, I need to lease a new vehicle in March 2017. Last time I leased my score dropped 30 points and it took about 8 months to go back up, but when it did, it went way up. I have only been building credit for about 3.5 years so maybe some things are effecting my score more due to my lack of credit history?

[Anonymous]

Likely several posters will weigh in ... US Bank offered me an increase and I took it with no hard inquiry or soft inquiry. Likely the same would be true for you. Usually the customer service reps (phone number on the back of the card) can tell you. Have had three limit increases and all were not HP's.

[Anonymous]

Spider is right.  Since they are offering it to you, there should be no hard pull.  Indeed, even when you request it, there is often only a soft pull, though you should always investigate in those situations so you are always in control over your credit profile.

You are also curious whether having a bigger credit limit will be viewed as a problem years from now when you want a home loan.  That's easy.  No.  That will not be a problem.  It will be nice that you have a bigger total credit limit, though a big CL  does not in itself  affect your score.

You mention that you have three credit cards and that you have not been using any of them for 4-5 months.  That's a problem.  You want to make sure that you use every card at least once every 4-5 months, or you put them at risk of being cancelled.  So if I were you, I would buy something on each one reasonably soon.  Never use a card for something you don't want or need, but I am sure you must be being gas or milk or paying a cell phone bill or something in the next few weeks.

Furthermore, as far as your score goes, FICO will not like it if all three cards report at $0 and the algorithm will lower your score when it sees that.  

So here's a few action items for you:

*  Very soon: make a purchase on each card (it can be small if you want).  Buy something you actually need though.

*  Let those purchases create a credit card statement with an actual balance.  After the monthly statement prints, pay it in full maybe a week later.  You will not be charged any interest.   

*  Once you have done that, you should allow at least one card to show a positive balance every month.  One card is fine, though all three is also ok.   Most months, keep your total credit card utilization fairly low, like < 30%.  CC utilization is your total CC debt / total CC credit limit.  Also keep the individual CC utilization for each card away from being maxxed out -- less than 50% is fine though  even higher is probably ok.

When you need your score to be as high as it can be:

*  Make sure exactly one card is reporting a small-ish balance.  Maybe $10-20.  All other cards should report $0.

[takeshi74]

---

@Anonymous wrote:

I don't know what my real score is but my credit card companies (Capital One, Citi, and US Bank) give me a score estimate which ranges from 760-809. 

---

You don't have one real score.  There are many scoring models used by creditors and for most models you have a score with each of the 3 major CRA's.  Instead of relying on one "real" score, you have consider the relevance of a scoring model and CRA to a given creditor.

Capital One provides a TransUnion New Account score.  It is not used by any creditors.  Citi provides an EQ FICO 8 Bankcard (not the same thing as an EQ FICO 8).  It is relevant only to creditors that specifically use EQ and the FICO 8 Bankcard model.  US Bank, IIRC, switched to VantageScore.  Some creditors use this.  If you know you have a creditor that does, it will be relevant to those creditors.

---

@Anonymous wrote:

Last month I pulled my annual credit reports and everything looked fine. However, my score seemed to have dropped 5 points.  It was a soft inquiry, so I'm not sure why that happened. Is that normal? 

---

Your scores will go up and down a bit due to normal data changes.  If you're going to worry over scores then set a bigger threshold.  I'd suggest at least 20 points.

A soft will not impact scoring.  Be very careful assuming causality.

---

@Anonymous wrote:

US Bank offered me a spending limit increase up to 10k. I want to do that, to increase my debt utilization ratio- am I using the right word?

---

It's really your revolving utilization -- the balance(s) /  limit(s) for your revolving accounts.  And you want it to be lower, not higher.  Remember, when you increase the denominator of a fraction (limit[s] in this case) it results in a smaller number.

---

@Anonymous wrote:

US Bank offered me a spending limit increase up to 10k. I want to do that, to increase my debt utilization ratio- am I using the right word? But I am planning on getting a mortgage in about 2 years and I wanted to make sure that will positively affect my credit in the long run instead of negatively. I also don't want to see my score drop anymore. 

---

Revolving utilization is determined based on your current limit(s) / balance(s).  The effect is not a long run effect.  The long run effect all depends on your revolving utilization over time.  We can't tell you what will happen to you over the next 2 years.  Taking the CLI won't hurt and I'd suggest taking it.

Keep in mind the following general recommendations with revolving utilization.

• Do not exceed 30%
• Lower is generally better as long as all you don't have all your revolving accounts reporting 0 balances
• To optimize and eke out as many points as possible you may want to ensure that only 1 account reports a balance at 10% or less

Revolving utilization falls under Amounts Owed (but is not the only thing that does):

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

As I stated above, your scores will go up and down with normal activity.  Set realistic expectations and keep an eye on trends -- not just individual numbers.  To add accounts you're going to see some impact.  Your overall financial health matters more than your score.  And having a high score isn't of any real benefit unless you're using it.  I.e. stop worrying over your score going down.  I'm not saying go hog wild but don't obsess over not allowing your score to go down at all.  Certainly work on building your credit profile but to build it you're going to have to open new acounts, take the hits for hard pulls, take the hits to AAoA, etc.  Keep the long run in mind.

Best terms are generally offered at 740-760 with FICO 8.  None of the scores you mentioned were FICO 8's so you may want to pull them for you so you have an idea of where you are.  Your probably fairly close to the scores you mentioned and if that's the case then you really don't need to worry too much IMO.

---

@Anonymous wrote:

I have only been building credit for about 3.5 years so maybe some things are effecting my score more due to my lack of credit history?

---

Note the slice for Length of Credit History in the link above.  It's really your Average Age of Accounts that matters.

---

@Anonymous wrote:

You are also curious whether having a bigger credit limit will be viewed as a problem years from now when you want a home loan.  

---

There is a chance that a creditor can review one's credit profile and find that the person has enough or too much overall credit extended according to that credtior's/product's underwriting requirements.  However, these requirements can vary by creditor and/or product and there's no way to determine if this is the case without actually bumping into that limitation.  When that happens one can generally request CLD's and/or close accounts if the person wants to comply with the creditor's requirements.

---

@Anonymous wrote:

\You want to make sure that you use every card at least once every 4-5 months, or you put them at risk of being cancelled.

---

I suggest verifying with each creditor what their policies are on cancellation due to inactivity as they can and do vary.

[Anonymous]

This is extremely helpful, thank you everyone! Bookmarking this so I can digest it and then I'm sure I'll come back to the forums with more questions! I like the idea of buying one small thing with each card. Capital One said on the phone they'd never cancel my card due to inactivity, (for the rest of my life!) but the other two, I'm not sure. So I'm going to do it with all three just to be on the safe side!

[CYBERSAM]

Welcome.

You can get much better CCs than what you have, with much higher CL.

I would say get couple of more CCs, such as Discover it (Free TU Fico score) and AMEX (Free EX Fico Score) you can go with no AF cards and they do SP CLI so it won't effect your score. Plus they both have nice reward/cash back categories.

[Eric_E]

I hate to contradict an established contributor like CreditGuyInDixie but my experience has been very different.

When I carry balances on multiple cards (I have four and have been using two consistently), my FICO score goes down with the reason "Too many cards carrying balances".  In fact recently I specifically stopped using all but one card to get rid of that pain in the * reason and eke my credit score up  (it worked, my Discover FICO score is 840).  I also started paying off my total balance (not just the last statement balance) just before the statement is generated to get a statement balance as close to zero as possible (I was getting a "The amount owed on your revolving accounts is too high" reason even though my balance is typically $2k or under on a $26k CL and is paid off each month).

[Thomas_Thumb]

Affect of # cards reporting a balance is highly dependent on profile. Many profiles can post balances on multiple cards without a negative impact on Fico 8 score.

Personally, I see no change in score reporting 2, 3, 4, 5 0r 6 of 6 cards on Fico 8 and have tested this multiple times. So it is not a one size fits all. In general, it is possible to lose 10 or 15 points associated with increasing # cards reporting  to more than 50% or perhaps 100% but, it is certainly not a given.

No contradictions - just different results depending on profile

[Anonymous]

Hello Eric!

Can you help me understand better where you think you and I are in disagreement?  You mention that having mutliple accounts with positive balances will not give you as high of a score as having just one -- and you mention that having a low total amount reporting will give you a better score than a higher amount. 

But that's why I concluded my advice to the OP by saying:

When you need your score to be as high as it can be:

*  Make sure exactly one card is reporting a small-ish balance.  Maybe $10-20.  All other cards should report $0.