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It’s not possible to have too much available credit on your credit cards. Leaving a portion or all of your credit limits on credit cards untapped can actually work in your favor. It signals to prospective lenders that you can maintain a healthy relationship with credit.
Here’s what you need to know when managing a lot of available credit.
» MORE:Can you have too much credit in general?
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Perhaps you've amassed a lot of available credit because credit card issuers keep hiking your credit limits or you've added several credit cards to your portfolio over the years.
While accumulating a lot of credit over time won't hurt your credit scores, applying for too much of it at once will. And, even though credit card issuers may provide a lot of available credit, they don't expect you to use it all. Using your credit card’s credit limits to full capacity can negatively impact your credit utilization ratio, a key factor that affects credit scores.
It’s recommended you don't exceed 30% of your available credit limit to maintain healthy credit scores. You want good credit scores (a FICO score of 690 or higher, for instance) to benefit from lower interest rates on future loans.
Of course, whether or not you're approved for credit in the future is at every lender's own discretion, as they each have their own policies and underwriting criteria. But you can rest easy knowing that the amount of available credit you have doesn't directly factor into your credit scores.
» RELATED: Should you apply for multiple credit cards at the same time?
How much available credit should I have?
There is no ideal, one-size-fits-all, amount of available credit that everyone should have. But a good guideline is to only take on a manageable amount of credit that aligns with your goals.
Enough to back up an emergency fund
If it gives you a sense of security to back up an emergency fund with a lot of available credit, then it’s worth working toward that goal. You can start by requesting a higher credit limit from a credit card issuer, but don't overdo it. Some credit card issuers run a hard inquiry on your credit report which can cause credit scores to temporarily drop.
It may also be important to diversify your credit across different credit card issuers. That way, if one issuer cuts your credit limit, you may still have credit available from another. Note, credit card issuers can lower credit limits at their own discretion, and it’s not uncommon for them to do so during times of economic uncertainty.
But not enough to get you into trouble
Avoid opening too many lines of credit if you’re likely to increase reliance on them or max out credit cards. If that’s the case, only take on a reasonable amount of credit that you can afford to pay back.
» MORE: Credit card limit increases carry risks and rewards
Maintaining a healthy relationship with credit
After gaining a hefty amount of credit, expect a lot of responsibility. You'll have to give your accounts some time and brain space, so don't take on more than you can manage.
Here are some ways to do right by your credit:
Stay on track with payments: On-time payments make up a big percentage of your credit scores, so it’s important to always pay the bill. For your convenience, ask your credit card issuers to change the payment due date to one that you won’t forget. Also, set reminders on your phone or calendar. Or, better yet, automate payments.
Keep accounts open and active: Not using your credit cards can lead issuers to close your accounts. Since the length of your credit history factors into your credit scores, this can have a negative effect. Avoid inactivity with budgeted recurring purchases, even if they're small.
Don’t use more than 30% of available credit: To maintain healthy credit scores, avoid using too much of your available credit.
Don’t apply for too much credit at once: If you’re going to apply for another credit card, wait six months between applications to give credit scores time to bounce back. Get comfortable with paying on time and in full before adding another card.
Review credit card statements often: Frequently look over your credit card statements to review transactions. You want to spot fraudulent purchases or mistakes as early as possible, as they can eventually hurt your credit.
» MORE:7 habits of highly effective credit card users
Here is a list of our partners and here's how we make money. Visit your My NerdWallet Settings page to see all the writers you're following. It's not possible to have too much available credit on your credit cards. Leaving a portion or all of your credit limits on credit cards untapped can actually work in your favor.
Having too much available credit isn't something to worry about, yet there are other credit factors that should have your attention. For the best chance at the highest possible credit score, make sure to prioritize paying your bills early or on time while striving to keep your credit utilization as low as possible.
A maxed-out credit card can lead to declined purchases, impact your credit scores and increase your monthly credit card payments. You can deal with a maxed-out card by doing things like paying down the balance on your card and establishing a budget to help keep spending in check.
In simplest terms, a credit card limit — also known as a credit line — is the maximum amount that a person can spend on their card, set by the credit card issuer.
This means you should take care not to spend more than 30% of your available credit at any given time. For instance, let's say you had a $5,000 monthly credit limit on your credit card. According to the 30% rule, you'd want to be sure you didn't spend more than $1,500 per month, or 30%.
While spending over your credit limit may provide short-term relief, it can cause long-term financial issues, including fees, debt and damage to your credit score.
There is no right number of credit cards to own, and owning multiple cards gives you access to different rewards programs that various cards offer. Owning five cards, for example, would give you a bigger total line of credit and lower your credit utilization ratio.
Yes, a $20,000 credit limit is good, as it is above the national average. The average credit card limit overall is around $13,000, and people who have higher limits than that typically have good to excellent credit, a high income and little to no existing debt.
Generally, a high credit card limit is considered to be $5,000 or more, and you will likely need good or excellent credit, along with a solid income, to get a limit of $20,000 or higher. You can learn more about the best high-limit credit cards on WalletHub.
Bottom line. If you have a credit card balance, it's typically best to pay it off in full if you can. Carrying a balance can lead to expensive interest charges and growing debt.
However, multiple accounts may be difficult to track, resulting in missed payments that lower your credit score. You must decide what you can manage and what will make you appear most desirable. Having too many cards with a zero balance will not improve your credit score. In fact, it can actually hurt it.
The golden rule of credit card usage is to do everything you can to pay off your entire balance each month. If you can do this, you won't be charged any interest.
By making a credit card payment 15 days before your payment due date—and again three days before—you're able to reduce your balances and show a lower credit utilization ratio before your billing cycle ends. That information is reported to the credit bureaus.
Credit limit is the total amount of credit available to a borrower, including any amount already borrowed. Available credit is the difference between the credit limit and the account balance, or how much you have left to spend before you reach your credit limit.
A credit limit is the maximum amount of money a lender will allow you to spend on a credit card or a line of credit. Knowing your maximum, however, does not mean it's a good idea to reach it.
There's no magic amount of credit that a person “should” have. Take as much credit as you're offered, try to keep your credit usage below 30 percent of your available credit and pay off your balances regularly. With responsible use and better credit card habits, you can maintain a good credit score.
However, there is a difference between credit limit and available credit. Your credit limit usually refers to the maximum amount that your card's issuer is willing to lend you. Meanwhile, your available credit is the maximum credit limit, minus any outstanding balance or pending charges on the card.
Introduction: My name is The Hon. Margery Christiansen, I am a bright, adorable, precious, inexpensive, gorgeous, comfortable, happy person who loves writing and wants to share my knowledge and understanding with you.
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