Early Retiree Credit (Card) Limits?

[daylatedollarshort]

In general, it is usually a bad idea to close credit cards or get limits lowered particularly if you use your other cards - even if paid off in full.

That is, someone who has $20,000 of total credit limits available and spends $5000 this month on Amex, gets the bill and pays it promptly will show on a credit report as having 25% credit utilization.

The person who has $100,000 of total credit limits available in the same situation has 5% credit utilization. This person will - all things being equal - have a higher credit score than the first person.

Lenders also consider at how high your combined existing credit lines are. If you do the Fatwallet approach of making extra income from rewards and sign up bonuses, you can't have an infinite number of cards open all with high available lines of credit.

 

[Katsmeow]

Lenders also consider at how high your combined existing credit lines are. If you do the Fatwallet approach of making extra income from rewards and sign up bonuses, you can't have an infinite number of cards open all with high available lines of credit.

Not in my experience. I obtained a mortgage last fall and we have existing credit card limits of well over $150,000. My FICO credit score was well over 800. I have not found that having high limits causes any kind of negative effect.

For the vast majority of lenders they are going to base lending on credit score and income. While an individual lender could theoretically deny credit for reasons that don't negatively impact your credit score - such as high limits - I would hazard that that is extremely unlikely. Of course, it could happen, but would be a blue moon sort of event. The more likely harm would come from reducing limits. This is because what does negatively impact your credit score is utilization over about 10% of your credit available. Therefore, lowering limits is far more likely to result in denial of credit due to lower credit score due to higher utilization.

The factors used to determine FICO score are:

Payment history - 35%
Amounts owed - 30% (this includes utilization and is directly impacted in a negative way by lower limits - this is impacted in a positive way by higher limits)
Length of credit history - 15%
New credit - 10% (they look negatively at someone going out and getting a bunch of credit at once - it is the newness of the credit that is the problem, btw, not the amount of the credit)
Type of credit - 10%

FICO Credit Score Chart: How credit scores are calculated

Amount of total credit available is not a factor except as it relates to utilization where more credit is favorable.

Again, I am not doubting that an individual lender could decide to not loan based upon high limits. What I am saying is that that is more unlikely than a lender refusing to loan because one's credit score is lower due to what appears to be more than 10% utilization of credit. People with few credit cards and little available overall credit can easily go over 10% utilization even with routine charging that is paid off in full each month.

 

[daylatedollarshort]

Not in my experience. I obtained a mortgage last fall and we have existing credit card limits of well over $150,000. My FICO credit score was well over 800. I have not found that having high limits causes any kind of negative effect.

For the vast majority of lenders they are going to base lending on credit score and income. While an individual lender could theoretically deny credit for reasons that don't negatively impact your credit score - such as high limits - I would hazard that that is extremely unlikely. Of course, it could happen, but would be a blue moon sort of event. The more likely harm would come from reducing limits. This is because what does negatively impact your credit score is utilization over about 10% of your credit available. Therefore, lowering limits is far more likely to result in denial of credit due to lower credit score due to higher utilization.

The factors used to determine FICO score are:

Payment history - 35%
Amounts owed - 30% (this includes utilization and is directly impacted in a negative way by lower limits - this is impacted in a positive way by higher limits)
Length of credit history - 15%
New credit - 10% (they look negatively at someone going out and getting a bunch of credit at once - it is the newness of the credit that is the problem, btw, not the amount of the credit)
Type of credit - 10%

FICO Credit Score Chart: How credit scores are calculated

Amount of total credit available is not a factor except as it relates to utilization where more credit is favorable.

Again, I am not doubting that an individual lender could decide to not loan based upon high limits. What I am saying is that that is more unlikely than a lender refusing to loan because one's credit score is lower due to what appears to be more than 10% utilization of credit. People with few credit cards and little available overall credit can easily go over 10% utilization even with routine charging that is paid off in full each month.

"Be strategic about closing cards. Sometimes, credit card companies get nervous if a consumer has too much available credit...

Read more: Credit card application rejected? 3 steps to getting next one approved
Compare credit cards here http://www.creditcards.com/?aid=af90b3b8

"Having too many credit cards and too much available credit can spook creditors who may worry about the potential of you getting in over your head in debt."

http://www.forbes.com/sites/financi...ot-so-surprising-credit-habits-of-the-top-25/
​

 

[UserRequested]

Not in my experience. I obtained a mortgage last fall and we have existing credit card limits of well over $150,000.

Just curious. You have a card limit of $150 k.Card limits are usually monthly limits. So if this is right, your annual spend on a cards alone could be close to $2million.

Do you really spend this much, or are the cards just there for a rainy day.

 

[MichaelB]

What am I missing, in terms of CC limits in case we ever want another bank CC? Denied for life, or until age 70 with Soc Sec

A few years ago we decided to change our card to the Fidelity Visa. We submitted the online application, got the card, it came in the mail, I called to activate, and bang, it kicked in with a $2k credit limit. Far less than the card we were leaving behind, and also less than our regular monthly charges. We put everything we can on that card. I called, spoke to a guy, then his supervisor. The only thing I said was they needed to increase the credit limit to $N or cancel. No job or pension, retired, no SS. It took them all of 3 minutes once the word cancel came up. Actually, I was very apologetic, told them it was a big misunderstanding and that I would never have opened the card account knowing it would be such a crappy credit limit.

You don't need a job, but they do need a reason to increase your credit limit.

 

[braumeister]

I always use line 37 on my 1040 as my income

Absolutely.
The Federal Gummint officially calls that number your Adjusted Gross Income, so why wouldn't you do the same?

Another thing I've noticed over the years, is that whenever I've come very close to a card limit a couple of times, they just automatically raised my limit.

 

[donheff]

IIRC, when I had asked to have my CC limit raised substantially (kid's school accepts my Fidelity 2% Rewards Card), I just gave them the AGI from the most recent taxes. I don't even think they asked for any proof.

If you have a good credit record, I think they just need a number to enter on their form. That was my impression.

-ERD50

I used a reward card for my son's first year in 1992 but after that all the schools I looked at either stopped accepting cards or ran them through a service that imposed a percentage fee for using a CC for payment. Have you confirmed that you can use your reward card without a service fee?

 

[audreyh1]

We never pay interest on credit cards, but we like the convenience and the cash back like most. We've just begun a full kitchen remodel, that will probably be paid for in three chunks, so I thought why not put as much as possible on the CC for the cash back.

So I called the CC folks and asked to increase our credit limit. Of course they asked what my income is, and since I have no pension or Soc Sec (yet), I have NO wage income. I was a little thrown, as I hadn't thought about it after more than 35 years with income. Fortunately DW still has a small wage income, and they increased the limit on that basis.

But when DW retires in the next year or two, we'll have NO income!

What am I missing, in terms of CC limits in case we ever want another bank CC? Denied for life, or until age 70 with Soc Sec

All the credit card apps I filled out lately asked for total annual income including income from investments. I had no problem getting the cards. I suspect folks withdrawing income from IRAs include that. And AMEX makes it pretty easy to request an increase. My new Costco Amex, I requested a limit increase just after about 3 months use, and it was raised no questions asked.

 

[ERD50]

I used a reward card for my son's first year in 1992 but after that all the schools I looked at either stopped accepting cards or ran them through a service that imposed a percentage fee for using a CC for payment. Have you confirmed that you can use your reward card without a service fee?

Abso-positively yes. I was skeptical also, verified it every which way, and it all checked out, and has continued every semester. No catches. Have had two kids go to this school, one kid to another that did charge fees for CC, so I used their 'echeck' bank transfer option at that school.

I'd love to know what % of people take advantage of this, versus paying by the month and being charged a fee. I do recall at orientation, several mom/pops looking at each other and responding to the 'pay-by-month' option. I pulled the finance person to the side to verify the pay-up-front option with a Rewards Card. I mentioned to DW, if they have the money to pay the bill over the course of a year, how hard could it really be to have it all up-front?

One of those 'snowball' effects of LBYM and delayed gratification - having that tuition amount stashed away and ready to apply to a bill in one swoop, versus paying every month is a tangible difference in out-of-pocket.

-ERD50

 

[ERhoosier]

Not sure, but usually an investment account statement or tax return copy will do the trick.

+1

Most CC app's allow you to note investment income.

 

[Midpack]

Not sure, but usually an investment account statement or tax return copy will do the trick.

+1.
Most CC app's allow you to note investment income.

My exchange was via phone but that sounds reasonable, though that might not have helped in 2008.

I was simply sharing an actual experience with Discover as food for thought, I'm sure I could work through it as needed in the no-income years ahead...

 

[ChiliPepr]

Never actually tried this, but another way to get your FICO score up (I'm speculating) would be to pay off your CC bill "in advance". When we sought a mortgage, we had a great score (around 820) but we found out it would have been even higher had we not used so much of our outstanding CC limit for our monthly transactions (roughly $5k out of $15K). Even though ALWAYS paid in full at the end of the month, the ratio cost us FICO score! We had very little income, so getting a higher limit would likely have been arduous, though not impossible. Here is what I speculate would be an EASY way to raise FICO score: "Cash" in a checking account, bank account or other (no longer) interest producing vehicle could be sent to the CC company a month before it is used.

A better way would be to "pay" your credit card bill online a couple days before your statement period closes. Where "ratio" is the statement balance/credit limit. If you pay early your statement balance would be only what you charged during the last couple days before the statement period closes.

 

[jazz4cash]

Just curious. You have a card limit of $150 k.Card limits are usually monthly limits. So if this is right, your annual spend on a cards alone could be close to $2million.

Do you really spend this much, or are the cards just there for a rainy day.

None of my cards have monthly limits that I am aware of. The limits are on the balance. If I have 10 cards with a balance limit of 15K each, my total limit is $150k.

 

[Katsmeow]

Just curious. You have a card limit of $150 k.Card limits are usually monthly limits. So if this is right, your annual spend on a cards alone could be close to $2million.

Do you really spend this much, or are the cards just there for a rainy day.

I have never had a card that had a monthly limit. They all have limits for the total balance. And, no, I don't spend that much. A number of years ago we did have excessive credit card debt when I decided it was important to get rid of it. One way we did it was by opening new accounts and getting 0% or very low interest rates through balance transfers. This helped us pay off the debt more quickly and to do it at low rates. Not believing in closing credit cards once the debt was paid off we kept the cards. Actually total available credit card limits at this point probably exceeds $200k. However, we mostly just use the Amex Blue Cash Preferred Card where we earn cash back. We pay the balance in full monthly. We have other MC/Visa cards which we rotate around using for places that won't take Amex. I expect that slowly creditors will close some of those cards since there are several we rarely use.

 

[calmloki]

Cheap SOB here, but consider picking up a couple signup bonus reward cards. Chase Sapphire was a good one, I just picked up $400 in signup bonus for $2500 spending in 3 months from Barclay bank's NFL card. So you get a card, Mrs. Midpack gets a card, you spend $5000 on the kitchen and get $800 credited to the card bill. 16% discount? thankyou please.

Google credit card signup bonus, beware and shun the annual fee that some companies charge up front. The NFL card has no annual fee and will go in the desk drawer.

 

[UserRequested]

None of my cards have monthly limits that I am aware of. The limits are on the balance. If I have 10 cards with a balance limit of 15K each, my total limit is $150k.

If I could ask another question . You have to settle card debts by a certain time, usually within a couple of weeks of statement date, otherwise you get hit with huge penalty interest. I presume you are paying of your cards in full.
If you are, then a $150k limit is the amount of credit you have in any one statement period, normally 30 days. So your monthly spend limit is $150k, or $2million a year

 

[DeborahB]

When we were getting pre-approved for a mortgage, 11 years ago, the fact that I had $2500 or so in CURRENT credit card charges lowered my credit score (still had a very good score). Had I known, I would have not used a credit card for much if at all for that month so I owed nothing. I always pay it off in full every month but I get cash back from Costco Amex and points from SouthWest Air so I charge everything I can.

I remember asking why I had a lower score than my S.O. and it was because of the amount I had charged that month. I don't know if this is still considered but I think so.

I would just put down some arbitrary number like AGI or perhaps the amount of income off my investments - not necessarily income I took since I reinvest dividends and have a lot in IRAs. Let them challenge me. I have never been refused credit and I often take those stupid offers (well not SO stupid) that give me cash for opening an account. I then put the card in a drawer until it expires

 

[audreyh1]

For income, I usually put close to whatever our tax return says our AGI was for the prior year. Of course you have to be over one whole calendar year retired for this to make sense.

 

[Katsmeow]

When we were getting pre-approved for a mortgage, 11 years ago, the fact that I had $2500 or so in CURRENT credit card charges lowered my credit score (still had a very good score). Had I known, I would have not used a credit card for much if at all for that month so I owed nothing. I always pay it off in full every month but I get cash back from Costco Amex and points from SouthWest Air so I charge everything I can.

I remember asking why I had a lower score than my S.O. and it was because of the amount I had charged that month. I don't know if this is still considered but I think so.

Yes, I talked about this earlier. It is because it is part of your credit utilization. Basically a credit report reports what the credit card company reports as your last balance on the card. Let's say you charged $2500 to Amex and Amex reports it. You pay it in full timely but the credit report just shows the last reported balance....they can't know you will pay it full. You might, after all, carry it as a balance. If the balance is less than 10% of your utilization on that card (would require a $25000 limit) and is less than 10% of your total credit utilization then it won't hurt you that much. However, if it is more than 10% it can hurt some and it hurts more than closer it is to the overall limit.

I always pay my Amex bill down to under 10% of utilization on that card before the bill closes every month. So, when we got a mortgage last year the reported balance was only a few hundred dollars although I had charged several thousand dollars during the month.

 

[DeborahB]

Well I just applied for a new mastercard with USAA and got one with $13,500 limit to start. It took 5 minutes. I looked at my investments and saw what the estimated earning were (from the brokerage site) - it was a bit higher than my AGI so I used that number. I figured I could justify using that as an income number. Interesting experience after this discussion!

 

[rayvt]

Been retired for 6 years, got several CCs in that time. They look primarily at your credit report, and then ask what your income is.
I give the the amount of pension, etc. plus what my 5% SWR would be if I actually took that withdrawal. (After all, I could take it, I just choose not to.)

I've never had them ask me to prove my income. When they look at your credit report and see how many CCs you have and your history of 100% on-time payments for the last XX years, they don't have any reason to question your income as stated.

After I'd been retired for 5 years I got an AMEX with $5000 limit. Didn't care about the limit, using it got me a discount on something I was planning to buy.
2 days after paying the first bill ($150) I decided to buy some $6000 item, so I had to call AMEX from the merchant and ask for a $10,000 higher limit. Figured they might not want to do that, wanting to double my limit after using the card exactly ONE time.

They asked my income, I gave the the same number on the original 5-week old application. They put me on hold "to talk to a supervisor" for 1 minute, came back and said, "Done."

They always tell you about the great deal they have going for a balance transfer. Guess a lot of people jump at that, cause I always laugh and say "What balance? I don't have any balances to transfer." That always confounds them, they must be used to people who carry a balance on every card they have.

 

[jazz4cash]

If I could ask another question . You have to settle card debts by a certain time, usually within a couple of weeks of statement date, otherwise you get hit with huge penalty interest. I presume you are paying of your cards in full.
If you are, then a $150k limit is the amount of credit you have in any one statement period, normally 30 days. So your monthly spend limit is $150k, or $2million a year

Not sure what your question is. The card limit has nothing to do with what I spend. The CC company decides what amount of credit they wish to extend. I presume this is based on my credit history. They can see I am nowhere near my total limit.

I do not pay these off in full each month. I do pay off the ones with "standard" interest rates. I take advantage of reduced rate balance transfers whenever it makes sense to do so. The weighted interest rate for the cards with balances is around 5% so I am in not in a big hurry to pay these off.

Theoretically, I could spend up to the entire limit in a single month. The payment would be approx 2% of the balance ($3k on $150k). Then I could spend ($3k-interest assessed) the following month without exceeding my limit.

 

[Katsmeow]

If I could ask another question . You have to settle card debts by a certain time, usually within a couple of weeks of statement date, otherwise you get hit with huge penalty interest. I presume you are paying of your cards in full.
If you are, then a $150k limit is the amount of credit you have in any one statement period, normally 30 days. So your monthly spend limit is $150k, or $2million a year

You are assuming that everyone spends each month the entire amount of their credit limit. While my credit limits exceed $150k, for example, I don't spend $150k in a single month. I could, I suppose but I usually spend only a small fraction of that. Just because credit is available doesn't mean you have to actually use it. In fact, you have a higher credit score if you have lots of credit available and use only a small fraction of it as that shows that you are able to control your spending and don't go wild when you get higher limits.

 

[UserRequested]

Not sure what your question is. The card limit has nothing to do with what I spend. The CC company decides what amount of credit they wish to extend. I presume this is based on my credit history. They can see I am nowhere near my total limit.

I do not pay these off in full each month. I do pay off the ones with "standard" interest rates. I take advantage of reduced rate balance transfers whenever it makes sense to do so. The weighted interest rate for the cards with balances is around 5% so I am in not in a big hurry to pay these off.

Theoretically, I could spend up to the entire limit in a single month. The payment would be approx 2% of the balance ($3k on $150k). Then I could spend ($3k-interest assessed) the following month without exceeding my limit.

Ok - I get it. It's a bit different in the US than here in Oz. Interest rates on unpaid balances can range fro 13 - 20%, and people who can't manage their finances end up paying through their noses.

On the other hand, all that easy credit in the US does not help the financially unsavvy pay off debt and save for retirement.

 

[jazz4cash]

Ok - I get it. It's a bit different in the US than here in Oz. Interest rates on unpaid balances can range fro 13 - 20%, and people who can't manage their finances end up paying through their noses.

On the other hand, all that easy credit in the US does not help the financially unsavvy pay off debt and save for retirement.

Actually, the standard interest on the unpaid balances for most of my cards averages over 20%....so I make sure they are paid off every month. I have some in the 13% range which I also pay off. The balances I carry average much less as I said before. Some credit card companies apply payments to the low interest balance first which means I cannot use those cards for any additional purchases. If they apply payments in this manner, it actually forces you to pay the higher rate for a longer period of time. Other cards pro-rate the payments which is a bit better.

Yes it is a game that can trap anyone that is finacially unsavvy or may not have a backup. My backup is a credit union account that charges 9% with no balance transfer fees.