Reduce my credit limits?

[Anonymous]

I'm trying to determine whether it would be a good idea to proactively reduce my credit limits.  I have three cards (two that I use for rewards, and an Amex that I only got because of one seller who prefers it).  The card limits are $30K, $30K and $25K but I never use more than $5K-$6K of credit in a month which I always pay off.  My FICO is a pretty good 801 but I'm afraid I'm getting dinged for having too much credit available even though my usage is low. 

Advice?

[Anonymous]

no. keeping your utilization below 10% is a good thing.

[longtimelurker]

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@Anonymous wrote:

I'm trying to determine whether it would be a good idea to proactively reduce my credit limits.  I have three cards (two that I use for rewards, and an Amex that I only got because of one seller who prefers it).  The card limits are $30K, $30K and $25K but I never use more than $5K-$6K of credit in a month which I always pay off.  My FICO is a pretty good 801 but I'm afraid I'm getting dinged for having too much credit available even though my usage is low. 

Advice?

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There are reasons for reducing credit limits, but they are not score related.  (Higher CLs which reduce util will not hurt, and may help).

Good reasons for reducing CLs:

1) If high limits are too much temptation, keep low to reduce the risk

2) Feel you are near the maximum with a lender and want a new card from them.  Then you can reduce the CL on the cards from that lender. 

3) Need auto-approvals to avoid "eyes on the account" (for those whose behavior may not meet with issuer approval).  Keep overall limits lower to maximize chance of auto-approval

Probably these don't apply to you.

[Anonymous]

OP, keep your limits where they are.  You don't get "dinged" for having too much credit.  You will however get dinged for your utilization crossing over the 8.9% threshold.  If you're using $5k-$6k on a $25k and float that balance for a few weeks before paying it off (even if you're paying in full and never paying interest) you can routinely be reporting 20-something percent utilization on any/all of your cards, meaning you'd be taking a score ding from doing so.  Dropping your limits will only raise your utilization percentages, further adversely impacting your scores.

A $5k-$6k spend monthly is very solid and one that your creditors no doubt like seeing relative to your limits, so just keep them where they're at.

[FinStar]

OP, this is totally a voluntary decision. You decide what's best for you.

If your scores are consistently at that level (based on the information you provided) then there's no harm in leaving them where they are.

Now, if there's any UW instance where relative income/DTI or other questions arise during a manual review as far as overall unsecured exposure, then that's really your call. Personally, I would leave as is. There are finicky lenders that have conditional approvals based on some of these factors, but there's always choices.

Of course, there's outliers for which individuals may lower their overall exposure to avoid overspending or unexpected surprises.

[CreditInspired]

OP

Of course, it’s what you feel comfortable with, but remember this—it’s always better to have the available credit and not need it than to need/want it but can’t secure it.

I suggest not reducing your CLs. Plus, as others have said, you will not be dinged for having big CLs.

On another note, you put way more spend on your cards—and I mean substantially more—than I put on mine.

It’s all good. You’re ok.

[Anonymous]

TBH, I think 3 $30K limit cards are just about perfect. That's probably what I would cut back to, if I had 3 with those limits. For instance if you charge $5K to a $30K card, you're well under the 29% utilization for one card. Lowring your limits would decrease that cushion, especially if an unforseen incident happened where you needed to float it for another statement period.  Or more. If you lowered them to say $20K, you'd constantly be at that 29% every statement period. 

I don't know what being so close to your limt does every month, even if it's PIF. Possibly just warrant auto CLIs. But might also indicate something else to creditors?

[SouthJamaica]

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@Anonymous wrote:

I'm trying to determine whether it would be a good idea to proactively reduce my credit limits.  I have three cards (two that I use for rewards, and an Amex that I only got because of one seller who prefers it).  The card limits are $30K, $30K and $25K but I never use more than $5K-$6K of credit in a month which I always pay off.  My FICO is a pretty good 801 but I'm afraid I'm getting dinged for having too much credit available even though my usage is low. 

Advice?

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No I don't think you're getting dinged for having too much credit available, and no you shouldn't lower your limits.

[Anonymous]

All I can gather from the OP is that their only concern is getting "dinged" for having too high of limits.  That however is impossible, so if that's the OP's only concern, which several of us have addressed, they'd have zero reason to further considering self-initiated CLDs.

[Thomas_Thumb]

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@Anonymous wrote:

I'm trying to determine whether it would be a good idea to proactively reduce my credit limits.  I have three cards (two that I use for rewards, and an Amex that I only got because of one seller who prefers it).  The card limits are $30K, $30K and $25K but I never use more than $5K-$6K of credit in a month which I always pay off.  My FICO is a pretty good 801 but I'm afraid I'm getting dinged for having too much credit available even though my usage is low. 

Advice?

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I advise having total credit limits at 20 to 40 times typical monthly spend. Why? You want to maintain aggregate utilization under 9% at all times to avoid score dings for aggregate utilization going above the initial 9% threshold. This is more critical for simple people like me who just pay statement balances.

The 20 to 40 multiple has enough safety margin to accomodate doubling average monthly spend without exceeding 9%. In your case max spend is $6k and I'll assume average is half that at $3k. Given this spend level and the recommended multiple your total CL should fall in the $60k to $120k range. Your $85k is right on target based on the criteria.

Another guideline I look at for spend flexibility while managing risk is looking at total CL relative to yearly income. There are many opinions on this from the "the higher the better" to "the bare minimum". The bare minimum often requires multiple payments each month prior to statements posting. I think the sweet spot is an aggregate CL between 0.4 and 1.6 times yearly income. An $85K aggregate CL translates to an income range of $53k to $212k.

A high aggregate CL to income ratio is not detrimental to score. Some posters have multiples more than 5 times yearly income. Key point is controlling spend to income. On the flip side some high income (> $1000k per year) individuals may only require a 0.2 multiple to meet their revolving credit spend needs. However, they may receive lower Fico scores due to higher utilization levels.