What credit limit should I aim for?

[Anonymous]

Last month (August) I went from having an $800 credit limit on my Credit One Bank card to having a total credit limit of $25,600 on 4 different cards.  

$1,000 Credit One 

$5,000 BofA

$4,000 Chase Slate

$9,000 Chase Sapphire Preferred

$6,600 AU on Dad's Chase Slate

What total credit limit should I strive for?  Should I stop applying for cards? To be frank, this has become a bit of an obsession lately lol

Inquiries:

EQ: 2

TU: 2

EX: 4 

[Thomas_Thumb]

A lot depends on how well you can manage spending relative to aggregate CL and your income level. Your risk tolerance is a factor as well. In general, it is best to maintain debt to income ratio below 20% to minimize risk of credit damage if an unforseen event were to occur (accident, job loss, market crash)

You might want to look at having an aggregate CL based on an amount that provides a sufficient buffer for maintaining combined UT under 10% when living within means. In this case UT = (total actual monthly CC spend/aggregate CL). Actual refers to what you spend, not what you allow to report.  A rule of thumb to consider: aggregate (combined) CL somewhere between 40% and 80% of gross yearly wages.

Examples: 60% if income @ $50k => $30k, 80% @ income = $75k => $60k, 40% @ income = $500k => $200k. 

[Anonymous]

You should aim for whatever limit meets your spending needs while allowing for some breathing room. You should also immediately close the Credit One card. It's junk, and you no longer need it.

[Anonymous]

My utilization rate is less than 10% (aggregate) and less than 10% per card.  I'm afraid that if I close the Credit One card, this will have a negative impact on my AAoA.  My longest account is 16 years but given that I have 3 brand new cards, this will lower my overall average. 

What is a good average for AAoA?

[Anonymous]

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@Anonymous wrote:

My utilization rate is less than 10% (aggregate) and less than 10% per card.  I'm afraid that if I close the Credit One card, this will have a negative impact on my AAoA.  My longest account is 16 years but given that I have 3 brand new cards, this will lower my overall average. 

What is a good average for AAoA?

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Closing the card will have zero impact on your AAoA. It remains in your files for 10 years.

[Thomas_Thumb]

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@Anonymous wrote:

My utilization rate is less than 10% (aggregate) and less than 10% per card.  I'm afraid that if I close the Credit One card, this will have a negative impact on my AAoA.  My longest account is 16 years but given that I have 3 brand new cards, this will lower my overall average. 

What is a good average for AAoA?

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An AAoA of 10 years (or more) is required to realize maximum score from an age perspective. A good AAoA is relative and depends on the person.

No harm in keeping a low CL card active as it will then continue to age and contribute more to AAoA over time.

Once closed the card age is frozen - and it will drop off your file after 10 years. When it drops off the report, contribution to AAoA is nullified. I made a mistake of closing a card with 20 years age 10 years ago. It dropped off my report earlier this year resulting in lower AAoA. If I had kept the card open it would now be 30 years old which would have boosted my AAoA a few years.

[Anonymous]

Hi TT.  You write:

"Once closed the card age is frozen - and it will drop off your file after 10 years."

Are you sure that you mean that first part?  For example, if a person closes a card that is 3 years old, you are saying that the card remains a 3-year old card in terms of the AAoA computation?

That's not actually true.  A closed card keeps aging.  Thus, suppose you had two cards, A and B, both of which are 3 years old, and you close A but keep B open.  Nine years later, both are treated by FICO as cards that are 12 years old and both are counted towards your AAoA computation.

The second part of what you said is true: a person contemplating closing a card should be aware that he will lose the age of that closed account when it falls off ten years later. 

[Thomas_Thumb]

My understanding has been that an inactive card continues to accumulate age but that a closed account does not. So you are saying that my Kohls account which closed at 3 years age due to inactivity 4 years ago actually contributes 7 years to the AAoA calculation instead of 3 years.

That would be nice.

[Anonymous]

Yup!  It sure does.  Your Kohls is contributing as a 7-year old account right now.  Two years from now it will contribute as a nine year old account.  Etc.

But as you said, eventually it will fall off, and then it will be counted no longer.

[Anonymous]

This is a bit irrational but one of the reasons I want to keep my credit one card is as a reminder of where I began my credit rebuilding process.  I started with a $300 credit limit (450s credit score).  $75 annual fee is something that I can afford.