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Why do you all sometimes have more credit than you could ever reasonably use?

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Why do you all sometimes have more credit than you could ever reasonably use?

If you have a normal income of like $60,000 why would you have credit card available balances upwards of $60,000? If you lost your mind one day and decided to put a Porsche on your fancy AmEx, how would you pay for that? Why would you want all that available credit if it would destroy you if you used it? I've seen people here with like $400k in available credit and while that's super impressive it seems insane.

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Senior Contributor

Re: Why do you all sometimes have more credit than you could ever reasonably use?

 

 

Keeps overall utilization under control. Meaning you may want or need to carry a balance. High available credit helps you do this without any significant score impact.

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Re: Why do you all sometimes have more credit than you could ever reasonably use?

What do monthly payments on 5% utilization of  around $120,000 available credit look like? That's around $6k in debt right? 

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Senior Contributor

Re: Why do you all sometimes have more credit than you could ever reasonably use?


@flish wrote:

What do monthly payments on 5% utilization of  around $120,000 available credit look like? That's around $6k in debt right? 


I won't look bad at all. Your way under 10%. And yes it's 5%.

Message 4 of 47
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Super Contributor

Re: Why do you all sometimes have more credit than you could ever reasonably use?

Hi Flish.  I see it just more as a matter of convenience.  When you have a big total credit limit, you can use your cards and not worry about how much they report in a given month (or worry about having to pay them down).  As Donny says, the utilization will still always be low, even if your spending goes up one month.

 

Your concern is valid, though, which touches on the whole issue of carrying a balance, which Donny also talked about.  (That's different from the convenience issue of reporting a big balance one month.)  Carrying balances almost always involves paying high interest, so I can see why you'd be nervous about paying ultra-high interest on 6k of debt when you have an annual income of 60k.

 

The good news is that a person can spend a lot of money every month on his credit cards, even with a low total credit limit, and still keep his utilization around 1-3%.  You have to pay the cards a few times during the month, but it can be done (and pretty painlessly).

 

I think people here sometimes do end up with ultra-high total credit limits, but that can often just be an artifact of the fact that they like applying for cards that give them huge sign up bonuses.  My new Chase Sapphire Preferred just gave me an extra 26k on my total CL.  I wasn't looking for that.  5k is all I probably need on that card.  It just kinda happened without my asking for it.

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Re: Why do you all sometimes have more credit than you could ever reasonably use?

Haha - no I'm not there, that's you from your signature. Just wondering what that payment looks like with great credit. 

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Re: Why do you all sometimes have more credit than you could ever reasonably use?

And thanks for the reply. I guess it makes sense. I'm too impulsive for any of that but maybe I'll grow up one day. Not even close to a credit score worth mentioning anyway!

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Super Contributor

Re: Why do you all sometimes have more credit than you could ever reasonably use?

You should search out CGID's "Practical Value of a Huge Credit Limit" thread which was seeing a lot of action about a month ago.  The question he posed was quite similar to what the OP is getting at with this thread.

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Senior Contributor

Re: Why do you all sometimes have more credit than you could ever reasonably use?


@flish wrote:

If you have a normal income of like $60,000 why would you have credit card available balances upwards of $60,000? If you lost your mind one day and decided to put a Porsche on your fancy AmEx, how would you pay for that? Why would you want all that available credit if it would destroy you if you used it? I've seen people here with like $400k in available credit and while that's super impressive it seems insane.


A total CL around 1x annual income is low enough to avoid going off the deep in in most cases.  The 1x  aggregate CL to income ratio should be high enough to maintain aggregate utilization under 9% for Fico score optimization without needing to make multiple payments on credit cards each month. A nominal 1x ratio (say anywhere between 0.6x to 1x) maintains a nice risk/reward/convenience balance - IMO. 

 

Let's say 25% of yearly income is run through credit cards for expense payments and purchases. Given a $60k per year income, that equates to $15k/year or $1250 per month. For a robust buffer on aggregate utilization (for those that don't plan to pre-pay charges before statements cut), I'd suggest a total CL that delivers an aggregate utilization at 2.5% nominal.

 

This means a good target for aggregate CL whould be $1250/ (0.025) = $50k. (or 0.8x based on a $60k income)

 

 

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Re: Why do you all sometimes have more credit than you could ever reasonably use?

I've also asked this question many times. I think it just gives people the opportunity to get in trrouble.

 

I also think it is part of the society we live in, one that is consumption oriented with the " i want this now" mentality.

 

Many people who over extended are among the almost 600k in postings in the credit repair and BK sections. Also the 1m+ people filing BK annually.

 

How did people even live before credit cards ???? I guessed they saved.

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