Does your credit limit matter or just the credit utilization?
Question by Dreamer09: Does your credit limit matter or just the credit utilization?
I just opened up my very first credit card from my local credit union and I’m looking to build a good credit store as I currently have NO credit. This is my first step. The credit limit I chose was $ 500. I understand I can raise this so I’m wondering if such a low credit limit will not be as beneficial to building up my credit score as say a $ 1,000 or $ 2,000 credit limit.
Best answer:
Answer by Calvin C
they are both part of the equation. with a low limit (anything under 10K) you are not a prime customer to obtain. You will be fine but it is going to be hard to keep purchases under $ 200 per month which is what you will have to do to add to your score
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It ain’t the amount of your limit and it ain’t the utilization percentage. It’s how you pay!!!
A larger limit does not improve your score, in itself. If you carry balances of more than 30% of your limit, it hurts your score. So increasing the limit would improve the percentage — not the best way to deal with it. Or you can pay down the balance and your score rebounds.
You will get a lot of advice telling you to only use 10%, 20%, 30%, depending on what “credit expert” site they read. Yes, utilization does play a part in your FICO score. However, it is not worth the effort to figure out exactly when the card updates to each of the three credit bureaus and then schedule charges and payments to get that perfect utilization rate.
Just make your like easy and keep it simple. Use the card for regular purchases, wait for the statement, and pay the balance in full every month. This will build your credit and avoid interest. As you become more established, the card company will usually increase your limit. You will probably also be able to qualify for a second credit card in about a year — better to have to active lines of credit.
Keep in mind that your credit score is really a very small part of any credit decision. what shows on your credit report is much more important. It also takes YEARS to build good credit. There are no shortcuts.