ADVERTISEMENT

How a high-limit card can boost your credit score

A generous credit limit helps, if you don’t use too much of it

By  |  Published: May 30, 2017

Brady Porche
Staff Reporter
Focusing on credit scores and what consumers can do to improve them

How a high-limit card can boost your credit score

 

A card with an eye-popping credit limit can boost your credit score, if you resist the temptation to overspend with it.  

The “amounts owed” category of FICO’s traditional credit scoring formula accounts for 30 percent of your score. If you carry high balances relative to your overall credit limit, it can weigh down your score. But adding a card with a high limit increases your total available credit, potentially giving your score a lift. (It may also help you recover points lost from the hard inquiry that was generated when you applied for the card.)

FICO has not revealed exactly how many points you can gain or lose based on credit utilization alone, and the overall impact varies based on your overall credit profile. But high-limit cards can help in the right circumstances. For instance, AJ Saleem, who owns a private tutoring company in Houston, has seen credit score increases of up to 40 points after adding high-limit cards to his collection of business credit cards. He said he has no negative items in his credit history.

“I have seen a high credit score boost, especially when it puts my credit utilization below the 30 percent mark,” Saleem said.

There’s a common misconception that you must keep your debt-to-limit ratio at or below 30 percent to avoid lowering your FICO score. But the “30-percent” rule only serves as a guide, and it’s best to keep your card balances as low as possible and pay them in full every month.

So, how do I get one?
You’re never guaranteed a high credit limit when you apply for a card. In general, applicants with good credit histories are more likely to receive higher credit lines, but there are many factors at play.

“There isn’t a general rule for what kind of credit score you need to qualify for a high credit limit,” said Rod Griffin, director of public education at Experian. “It depends on the type of credit card you’re applying for, what the lender’s criteria are and which credit score formula they are using. In addition to your credit history and credit score, some lenders may also consider other factors such as income when making their decision.”

Additionally, there’s no set standard for what constitutes a “high” credit limit. Your definition of a high limit may differ significantly from someone else’s, depending on your spending habits and your attitude toward debt. For the purposes of credit scoring, a high limit could be considered one that significantly increases your overall available credit — which could be as low as $500 or $50,000 or more. 

“That’s going to be more or less in the eye of the beholder,” said Barry Paperno, a credit scoring expert who has worked for FICO and Experian. “Other than ‘the higher the better,’ there are no particular credit limit thresholds that provide any scoring perks.” 

The high-limit card balancing act
How much can a high-limit card help your credit score? It depends on how you use it. For instance, if you start out with a total of $10,000 in available credit across all your existing cards, with total balances of $5,000, your utilization ratio is 50 percent. If you add a new card with a $10,000 limit and a zero balance, your available credit increases to $20,000 and your utilization drops to 25 percent. (See Example 1.) 

Example 1 - How your credit utilization ratio
changes by adding a card with a $10,000 credit limit
Card account(s) Balance(s) Overall available credit Credit utilization
Existing card(s) $5,000 $10,000 50 percent
New high-limit card $0 $10,000 0 percent
All accounts $5,000 $20,000 25 percent
Example 1 - How your credit utilization ratio
changes by adding a card with a $10,000 credit limit
Card account(s) Balance(s) Overall available credit Credit utilization
Existing card(s) $5,000 $10,000 50 percent
New high-limit card $0 $10,000 0 percent
All accounts $5,000 $20,000 25 percent

But suppose you immediately make a big purchase with the new card, perhaps because it has a generous rewards sign-up bonus or an introductory no-interest period. A charge of $2,500 would bring your total utilization to 38 percent. (See Example 2.) That’s still an improvement, but it would only take another $2,500 in charges to get your balance-to-limit ratio back to 50 percent (assuming you continue to carry roughly $5,000 in balances across your other cards).  

Example 2 - How your credit utilization ratio
changes by adding $2,500 to new card with $10,000 limit
Card account(s) Balance(s) Overall available credit Credit utilization
Existing card(s) $5,000 $10,000 50 percent
New high-limit card $2,500 $10,000 25 percent
All accounts $7,500 $20,000 38 percent
Example 2 - How your credit utilization ratio
changes by adding $2,500 to new card with $10,000 limit
Card account(s) Balance(s) Overall available credit Credit utilization
Existing card(s) $5,000 $10,000 50 percent
New high-limit card $2,500 $10,000 25 percent
All accounts $7,500 $20,000 38 percent

Your credit score will likely drop if the new high-limit card sets you off on a spending spree. Let’s say six months have passed, and you’ve racked up a $7,500 balance on your high-limit card. If you continue to carry $5,000 in debt on your other cards, you’re now using 63 percent of your available credit. (See Example 3.) Your score will suffer because your overall utilization has jumped, and you have one card with a 75 percent debt-to-limit ratio.

Example 3 - How your credit utilization ratio
changes by adding $7,500 to new card with $10,000 limit
Card account(s) Balance(s) Overall available credit Credit utilization
Existing card(s) $5,000 $10,000 50 percent
New high-limit card $7,500 $10,000 75 percent
All accounts $12,500 $20,000 63 percent
Example 3 - How your credit utilization ratio
changes by adding $7,500 to new card with $10,000 limit
Card account(s) Balance(s) Overall available credit Credit utilization
Existing card(s) $5,000 $10,000 50 percent
New high-limit card $7,500 $10,000 75 percent
All accounts $12,500 $20,000 63 percent

“Credit scores consider both your overall balance-to-limit ratio and your utilization rate on individual accounts,” Griffin said.

Maxing out a credit card can seriously damage your score. If you go hog wild with your new card and charge up all its available credit, you could lose as many as 45 points, according to FICO. Plus, length of credit history and new credit represent 15 percent and 10 percent of your score, respectively, and adding a new card account can hurt you in both categories.

This isn’t meant to suggest that you should get a high-limit card only to let it collect dust. If your new card’s benefits are too good to let it sit in your wallet, try paying off your other balances before you start to use the new card. This is especially important if your new card has a rewards sign-up bonus that requires you to make thousands of dollars in purchases within a few months.

It’s also possible to increase your available credit without applying for any new cards. Simply contact the issuer of a card you already own and ask for a credit limit increase. It helps your case greatly if you’ve had the card a long time, have a low balance and have made payments on time. Often, an issuer will run a credit check to see if you qualify for a credit limit increase, resulting in a hard inquiry. You can ask the customer service rep whether a credit check will be run or not first.

Not an invitation to live outside your means
While a high-limit card can be a great tool for improving your credit, but if you feel the urge to overspend would be too hard to resist, avoid any new cards. Using too much available credit can put you at a higher risk of missing a payment, which can cost you up to 110 points. 

“For some people, higher credit limits could represent the temptation to spend more,” Griffin said. “And, it’s possible that some lenders or credit scoring models may look at an individual’s total credit limit on all their accounts as a measure of their ability to incur debt in the future.”

But if you’re confident that having more credit available won’t change your spending habits for the worse, a high-limit card is worth considering. The resulting credit score boost may help you get lower interest rates on home and car loans and other credit cards in the future. 

See related: How lowering your card limit hurts your credit score, With balance transfers, watch your individual card utilization

ADVERTISEMENT
ADVERTISEMENT

Join the discussion
We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.




Updated: 08-19-2017

ADVERTISEMENT


Weekly newsletter
Get the latest news, advice, articles and tips delivered to your inbox. It's FREE.


ADVERTISEMENT