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Keeping Score

Why did my issuer offer me a low credit limit despite my high credit score?

If you have an existing high credit line with the bank, it may not be so generous with new accounts

Summary

If you have an existing high credit line with the same bank, it may not be so generous with additional credit accounts.

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Why did my issuer offer me a low credit limit despite my high credit score?

If you have an existing high credit line with the same bank, it may not be so generous with additional credit accounts. And if you transfer a large balance to the new card with the low credit limit, you could max it out and damage your credit score.

You could apply for a 0-percent balance transfer card from a different issuer, but it could lower your score and you still may not get a significantly higher credit limit.

Check out all the answers from our credit card experts.

Dear Keeping Score,

We recently got an offer for a 0 percent APR card. We wanted to move our $8,100 balance that was on a 0 percent card that was ending. The major issuer, with whom we have another card with a $20,000 line, only would give us a $3,100 limit. Our credit scores are in the 750-800 range. We retired in our 40s with significant assets. We don’t have house loans and have never done car loans. I know that hurts our score.

Why don’t credit card companies look at your whole picture? I can make my income whatever I want, from $25,000 to $300,000 in any given year based on asset sales. We just paid off the $8,100 balance on the other card. I just wanted to float it another year and get interest. A $3,100 credit line is an insult. Why would they waste our time with that stupidity? -Valerie

Dear Valerie,

Let me get this straight. You say you already have a credit card with a $20,000 line with the card issuer. Now you are asking them to basically increase their credit exposure to you to about 1.5 times the credit they have already extended to you with another card. You want to do this so you can take advantage of their attempt to attract new customers.

From the bank’s perspective, the 0-percent balance transfer feature is meant to be an incentive to attract customers and increase the volume of credit transactions on their cards, not to give away free money (usually with a 3-5 percent transfer fee to discourage floaters) to existing cardholders. To allow you to do this might be considered “stupidity” on the bank’s part.

See related: Approved for a too-low-limit card; better off closing it?

How credit limits are assigned based on credit scores

But, you raise a legitimate question: How to get a credit card company to consider savings and investments in a credit decision. They currently use a formula that is tied very much to your credit score and what you tell them your income is. Being in the 750-800 range puts you close to the head of the class, so I can see why you were troubled by being offered a relatively small line (but I don’t know that I would call it an insult, necessarily).

According to the American Bankers Association, that credit score should get you a new card with a limit between $9,000 and $10,000 with a new card issuer. However, from the point of view of your current card issuer, you already have a limit of $20,000. So, you’ve already received about as much credit as you can expect from that creditor.

Issuers are required to ask your income

When it comes to income, the CARD Act of 2009 made it a requirement for card issuers to ask about income on credit applications. The main reason for this is so lenders will have some certainty that the debt can be managed and repaid. Our story “Why is my credit card company asking about my income?” explains it this way:

“Under rules implemented by the Credit CARD Act, banks must consider your ability to pay your debt before issuing the card, and before granting an increase in your credit limit.

  • “Under the rule, the card must consider at least one of the following metrics:
  • “The ratio of debt obligations to income, debt to assets or ‘the income the consumer will have after paying debt obligations.’

The rule says cards are allowed to rely on the income data that you provide.”

This means the lender will depend on you to tell them the truth. What you might consider, since your income is from assets and investments and is basically up to you, is to pick a reasonable figure that you could handle easily and report that as your income.

Another alternative is to place some of your savings or investments with the institution you are asking for a credit card. Some banks evaluate credit risk based on traditional credit bureau history, credit scores and applicant income, as well as what they call “proprietary data.”

Applicants with existing deposit or investment relationships with a bank may have this information considered in the underwriting evaluation. It is much more difficult for a lender to factor in assets held outside the bank in a systematic and controlled way. So they don’t.

See related: Don’t become addicted to balance transfer offers

Beware of maxing out a new card

One last word of caution: moving $8,100 from one 0 percent card to another means that you would be very close to maxing the card out from the beginning (assuming the average limits noted above).

I understand wanting to take advantage of earning interest, but using that much of your limit all at once will significantly increase your credit utilization rate. This would harm your credit score. For that reason, you will want to have a plan in place to repay the debt in a timely manner.

Of course, you could also apply for a 0 percent balance transfer card from a different issuer with whom you have no existing accounts. But keep in mind that applying for another new card could temporarily lower your credit score via a hard inquiry and by adding a new account to your credit report. You’re also not guaranteed to get a credit limit that is significantly higher than what your current issuer has offered.

Remember to keep track of your score!

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Published: March 1, 2019

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