"Enjoy Added Buying Power"

[A_P_]

Had to chuckle at the email I got from my credit card company this morning offering me the opportunity to apply for a "hassle-free credit line increase." Now, I spend according to my budget and only use the card so I can get rewards/fraud protection/etc. I have more available credit than I could possibly use. But obviously there are suckers out there who fall for this type of advertising and try to increase their credit limit so that they have more "buying power" to use on things they can't actually afford. Sigh...

[Brian Fellows]

Well part of your credit rating is (credit used/credit available) ratio... so if you have a higher limit, and you're using the same amount of your credit, this would help your credit score.

Sure debt is bad blah blah blah, but at the end of the day, you'll get a better mortgage rate if you've got better credit.  I get the point you're making, but assuming you're good with your credit cards, there's no reason not to take it.

More egregious are the checks they send you that you can "reward yourself" with (at a low low APR of 23%!).

[AJDZee]

Well part of your credit rating is (credit used/credit available) ratio... so if you have a higher limit, and you're using the same amount of your credit, this would help your credit score.

Sure debt is bad blah blah blah, but at the end of the day, you'll get a better mortgage rate if you've got better credit.  I get the point you're making, but assuming you're good with your credit cards, there's no reason not to take it.

More egregious are the checks they send you that you can "reward yourself" with (at a low low APR of 23%!).

Is a lower used/available credit ratio always better? I heard there's an optimal ratio, ~30%, which I never really understood why.

By the way, Brian, I love your show Safari Planet!  Getting well soon!

[Gin1984]

Well part of your credit rating is (credit used/credit available) ratio... so if you have a higher limit, and you're using the same amount of your credit, this would help your credit score.

Sure debt is bad blah blah blah, but at the end of the day, you'll get a better mortgage rate if you've got better credit.  I get the point you're making, but assuming you're good with your credit cards, there's no reason not to take it.

More egregious are the checks they send you that you can "reward yourself" with (at a low low APR of 23%!).

Is a lower used/available credit ratio always better? I heard there's an optimal ratio, ~30%, which I never really understood why.

By the way, Brian, I love your show Safari Planet!  Getting well soon!

Actually at the highest #s (760 and above) the optimal is less than 10% not 30%.  And yes, it is always better.

[unix_kung_fu]

Sadly, you visit just about any credit/credit related forum online and you have a ton of misguided souls that honestly believe that being financially successful is to amass double-digit cards, having a credit score as close to the 800s as possible, and total available credit in the six figures. Never mind most of these people are carrying balances, in some cases of 20k, but their utilization is just under 20% so it is justified.

They are true financial legends in their own minds.

And god help anyone who dare suggests to close out some cards to curb spending, or to regain a security deposit while ditching an annual fee and investing that money. They'll get the rope for sure.

They don't understand that you can't bequeath a credit file or retire off credit, living paycheck to paycheck is sound financial advice as long as you have every type of credit instrument imaginable reporting in good standing.

[Brian Fellows]

Lower is definitely better, but you want something non-zero.  That DOESN'T mean you should carry a balance that you pay interest on.  It just means that when they go to generate your monthly statement, you should have something on credit, which you'd then have a year to pay off.  Different companies report balances to the credit bureaus at different times, but generally speaking they just do it at the same time they generate their statement.

So put a tank of gas on your card, let the card company generate your monthly bill, and pay that tank of gas off in full by your due date.  Enough to show you're (responsibly!) using credit, but you'll never have any interest to pay as long as you pay the whole card off by the due date.

[AJDZee]

I guess my question above was meant more of a discussion maker... I think we all go by what we've heard, but we don't really know what is optimal unless you've actually worked at Trans union/Equifax. So we have to rely on what the 'experts' say...

I've never paid a cent of cc interest in my life, and always keep my utilization between 20-30%, (partly because that's what I've been told, but mostly because that's what my monthly spending just happens to work out to and I'm not interested in increasing my credit limit for no reason) and yes I have a high credit score... so the advice seems to check out...

Would my credit score be higher if I filled out the credit limit increase application they send me every year, cutting my utilization ratio to 10-15%?... would a higher score even translate into any tangible benefit to me?... I'm not so sure.

But my point is I'm skeptical from who we hear 'advice' from because many of the financial/consumer credit industries are in bed with one another and do better the less the general public knows what number crunching goes on behind the curtain.

[Brian Fellows]

I'm with you on not knowing the actual math behind it.  My anectodatal evidence is that the most I've EVER had on credit cards around statement time was ~$3000, but at the time my available credit was around 100,000 (it's about $110,000 now).  Edit- by $3000, I mean $3000 that I paid off after my statement generated - I've never paid interest.

My credit score during that time frame was ALWAYS between 780-800 at 2% utilization max.  It's now between 760-780 for the most part.  It took a nosedive AFTER I paid off my student loans; they like you to have mutliple TYPES of credit too, and now that credit cards are all I have I lost some points, though it seems to be trending upward (all time low that I've ever seen was 760 on the nose).

So I'm fairly sure that with zero debt and minimal credit utilization, you can still have an optimal credit score for mortgage rates (the only debt I consider OK, personally).

[odput]

Would my credit score be higher if I filled out the credit limit increase application they send me every year, cutting my utilization ratio to 10-15%?... would a higher score even translate into any tangible benefit to me?... I'm not so sure.

I've always wondered this myself...my credit score has always been above 740, always qualifying for top tier quality mortgages, so would it really do me any good to try to bump it to 780 or even 800?  It's not like I'm going to go finance a bunch of crap, just need to have the score high enough to get lowest available mortgage rates when we move next

[AJDZee]

I've always wondered this myself...my credit score has always been above 740, always qualifying for top tier quality mortgages, so would it really do me any good to try to bump it to 780 or even 800?  It's not like I'm going to go finance a bunch of crap, just need to have the score high enough to get lowest available mortgage rates when we move next

Same here. We're always told to make sure you have a great credit score... which according to difference sources means using between 0-50% of your credit at all times... having different kinds of credit...etc. My credit score has never been an issue for mortgage, so I could just be naive... but it seems once you have a score of mid-700ish (?) you don't need any higher - of course all lenders have their own standards.

I get why you need to have a history of paying off credit to have a good credit history, to show you are credit worthy... but I cringe at the idea that people use their LOC or other lending products (and pay interest), in the name of building credit.

[unix_kung_fu]

740 or above you are likely getting the best type of loan available. The only added benefit of having a higher score is a having more of a cushion. Manipulating your reported utilization while paying in full might give you a benefit of a point or two, not much to affect interest rates likely.

I can see in one scenario when you let it report a bit for one month, because some of the credit reports will show 'highest reported balance', that being the highest from all previous months it reported, which to an underwriter would indicate to him that you are capable of using said credit and paying it off, but FICO isn't going to give you some make or break, financially impacting alteration to your score if you do/don't.