Before you apply for a new loan, do whatever you can to raise your credit score so you get the best loan possible. Having a high credit card limit rather than a low credit card limit, in most cases, will raise your credit score.
Effects
Having a high credit card limit helps you keep your balance-to-limit ratio low (provided you pay off your cards in full each month, and don't carry a lot of debt). The FICO credit-scoring model uses your credit use, or balance-to-limit ratio, to determine about 30 percent of your credit score.
Example
A person with two credit cards with high limits of $10,000 and $5,000 and a balance of $2,000 on each card would be using $4,000 of the $15,000 of credit, or about 27 percent. A person with low credit card limits of $3,000 and $2,500 and a balance of $2,000 on each card would be using $4,000 of the $5,500 of credit, or about 73 percent. Thus, higher limits lead to a better credit score.
Considerations
If you use your high credit card limit on purchases you cannot afford, it can end up hurting your credit score. For example, if you purchased items and fell behind on payments because the payments were too high for your income, this would decrease your credit score. In this case, it's best to lower your limit to help resist the temptation to spend too much.
0 comments:
Post a Comment