Credit Score Factors and High Credit Card Limits

People in the lending industry may give you wrong advice on your credit score: that high credit card limits are bad. A high credit limit probably helps your score. Some of the most important credit scoring factors need a high credit card limit. The only potential damage is misusing your available line.

Misconception

The Fair Isaac Corporation, which controls the most dominant scoring algorithm in the consumer credit industry, does not list "too much credit" or anything like it as a reason to ding a score, according to Liz Weston of MSN Money Central. Available credit only affects credit utilization -- the percent of how much your credit you have available. High credit limits keep utilization rates low, even if you have several thousand dollars in credit card debt.

Will You Overspend?

Having a high credit card limit might entice you to spend more than you can afford. The FICO model uses the nominal value of your installment debts and revolving balances for the second most important category -- amounts owed. Overloading on debt could overwhelm your finances. Missing payments has a hugely negative effect on the most important part of the FICO formula: payment history.

Considerations

There is always the possibility that future lenders will look at the accounts in your credit report and worry about a large limit. With so much credit available, you could take out a loan, run up a lot of credit card debt and default on both accounts. However, this is a rare thought in the minds of lenders. Data from FICO suggests that high credit limits are insignificant in comparison to a history of paying on time.

Tip

Always keep a low credit card balance, but use your account every month so the lender can report something to the credit bureaus. Some credit card companies cut limits on accounts with a large line of credit, especially when the borrower has a spotty payment history or does not use the account. Your creditor can cut your limit at any time for any reason and needs only to send you a letter announcing your new lower limit.