Guidelines for Keeping Credit Limits and Utilization Low?

Discussion in 'Other Credit Card Programs' started by Explore, Aug 24, 2012.  |  Print Topic

  1. Explore
    Original Member

    Explore Silver Member

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    I recall discussions that the banks will not approve new credit card applications if the combined credit limits on all your existing cards are too high, relative to your income. Apparently that's the case even if your credit utilization is 5% of the combined limits.

    If that's still true, how high can your combined limits go as a percentage of reported income before the banks say no more? Will the banks lower your limits at your request to avoid this problem?
     
  2. jbcarioca
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    jbcarioca Gold Member

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    Very few banks actually ask for income data, and revolving loans/income is an unreliable calculation anyway because the reported balances may be non-revolving anyway. So, if there is a calculation it is usually based on imputed income based on zip+4 data and publicly sourced third-party data like Prizm, as one example. Thus the answer is not cut and dried. If your total credit lines are less than your annual gross income you are unlikely to trigger anything negative unless you're above 70% or so of the reported credit lines plus have auto debt and installment loans. The only common triggers of a loan capacity reviews are taking out a loan from a finance company, moving, entering bankruptcy, getting married or divorced or engaging in a lawsuit or getting arrested. Several of those will simply cause you to be rejected from the better deals.
     
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  3. desamo

    desamo Gold Member

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    FWIW, I have been rejected for high installment loan utilization (meaning I was just starting to pay off an auto loan and a student loan). It's a fairly rare reason for a rejection, though.

    In general, you're best off with < 25% revolving utilization.
     
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  4. marcwint55

    marcwint55 Gold Member

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    there is no reasoning behind what banks will do as it is very dependent upon who is reviewing your application. I refinanced my house 6 months ago at 3.375% for fifteen years. I paid down the principal by $90,000 since then and they quoted me 2.875% for a fifteen year loan with no costs, so I applied with the same lender. They underwriter has told me that my app is on hold as my debt ratio is 41%. Unfortunately the underwriter is an idiot, as my debt ratio is about 5% and the loan to value ratio is about 15%. If the savings were huge I would spend the time to explain tax returns to the underwriter, but for a $400,000.00 loan it really isn't worth it.
     
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  5. jbcarioca
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    jbcarioca Gold Member

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    Generally, the banks with which i have worked prefer revolving utilization as viewed in a credit report to be between 40% and 60% for typical credit card applications. That is because the profitability models like revolving balances but the risk models don't like much of that, so there is an internal battle between those models. Too little and the profitability diminishes; too much and the risk skyrockets. The more mature the file history the higher the revolving tolerance, other things remaining equal. Since 2010, roughly, student loans and new installment loans have been gradually viewed more negatively. YMMV, especially because one of the five largest issuers is far more lax and another one is far tighter. Comments in several different forum discussions probably make it clear who those two are.
     
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  6. jbcarioca
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    jbcarioca Gold Member

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    We all need to keep in mind that mortgages are all individually processed these days, while credit card approvals are still about 95% automated. In addition mortgages are under far greater scrutiny than they were even a couple of years ago for reasons we all understand. The side effect of all this caution is that mortgage approvals in the US are often ridiculously cursory but decisions are nominally conservative. It looks like you have experienced that it all the absurdity of the day.
     
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  7. jralexander14

    jralexander14 Silver Member

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    This is a good question. To tack onto it, my combined credit limit for all my CC's is about $25,000 OVER my income. I'm nervous to app for any more cards, esp with Amex, as I don't want to trigger a financial review. I wouldn't mind closing cards out or reallocating credit, I don't want or need any more credit. But I don't want to draw attention to my large limit, so I'm just staying put right now. What would you do?
     
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  8. desamo

    desamo Gold Member

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    Interesting. I've had significantly higher FICOs when I've been at < 25%. My utilization at present is around 40%, but I'm not applying for anything (and I closed several cards that I wasn't going to be using, losing some of my capacity).

    My rejection for installment loans was quite a few years ago, no later than 2003. (I was in grad school then and had a relatively new car loan.)
     
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  9. Explore
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    Explore Silver Member

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    How about asking banks for credit line reductions? (It's a question for the forum; I've been thinking about that myself).
     
  10. merice107

    merice107 Silver Member

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    Can you do that? The opposite of increasing your credit limit? This way you don't get rejected on a future credit application because you have too much credit issued to you?
     
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  11. deant
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    deant Milepoint Guide

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    I would cancel some of my "newer" cards. That would do a couple of things. First, open credit limit with the bank where you closed the card. Second, assuming that the card is "newer" than your average card, it will drive up the average age of your cards. Both positive things.

    My wife and I routinely close credit cards so when we apply for a new card we don't have to call to reallocate CL.
     
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  12. Redhead

    Redhead Silver Member

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    You absolutely can do this. You should just be sure to keep your utilization ratio (as calculated at the high balance point in a month) low. But it may allow you to get another card with a bonus
     
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  13. jralexander14

    jralexander14 Silver Member

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    Thanks deant & Redhead! I am not going for any new cards right now but I will employ your tactics soon as I'm starting to get the itch for a couple new cards!
     
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  14. artvndlay

    artvndlay Active Member

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    I was not aware that high limits were a potential issue...I understand why it could be, but I have never run into any trouble. After my second app party of the year my total credit card limit is over 2x my income and that does not count business lines, maybe 1-2% utilization. A couple issuers have capped their total exposure but are happy to move the limits around to let me open new accounts. AMEX lines are smaller in comparison to others but still had multiple AMEX approvals this year. Just another data point for comparison I suppose.
     
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  15. servo

    servo Silver Member

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    This is a question I've been pondering as well now. My total limit is about $5k over my gross salary, and I really want to go after the AA Business card, and another US Air Barclays card soon. I really don't need any more credit, so I could ask the various entities to shift the limits around, but my mainstay card (Platinum Navy Federal CU Visa) has a $25k limit in and of itself. That's my credit history card, so I'm not closing it (also one of my only 2 no annual fee cards), but I wonder if I could drop $15k from that limit and not set off any red flags. Could lowering the limit on a card potentially be looked upon as negative? Is there a way to report on the various bureaus that the limit wasn't bank induced? I could see the bank inducing a lower limit as a negative ding, but I don't know that for sure.
     
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  16. robertw477

    robertw477 Silver Member

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    Credit Limits above you salary are not an issue. To me utilization is very key. Especially these days. 25% or under is very good. FYI high limit cards IMHO can cause other lenders to also issue high limit cards. Certain cards might have internal caps that the card companies dont go above. A standard CL with a good score you figure about 5K. I dont see that as a negative. Total risk per card company has become something they watch. Often you might see a card company reallocationg some credit off one of your other cards onto the new card you apply for. I am not sure if you close a card and then apply, if that will affect the size of the CL or not. Also the Amex Fr review is not triggered by anything mentioned here. It can be a sort of random thing. I got it once and my business partner got it once. We gave them the data and everything stayed the same Credit Limit wise for the most part.
     

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