Should I Reduce My High Credit Limit If I Don't Use It?
There are a lot of different factors that influence your credit score, the biggest ones being paying your bills on time, and the amount of credit that you're utilizing. For example, if you've got $20,000 of available credit between all your accounts, and you're running a combined balance of $17,000, that represents a high credit utilization, and tells credit card companies that you're spending outside of your means. If you apply for new credit, chances are that you're going to continue spending similarly, so a lot of companies will decline applicants who have high utilization.
TPG reader Mikhail tweeted me:
"@thepointsguy I have a high credit limit that I don't need. Can I lower it without impacting my credit score? I pay the balance in full."
First, Mikhail, good job for paying your balance in full! You should also try to pay it as early as possible, because even if you pay in full, credit card companies report at different times, and can even report your balance before they receive your payment. That's one aspect of credit that I hate; it's not right that even if you pay your bill on time, you can still have that balance reported as utilization.
At any rate, given that a low utilization is better, there's really no benefit to reducing your credit limit, even if you don't plan on using it. Your score will not go up if you have less credit. If the credit card company reports your credit mid-month (before you've paid), and you have less overall credit available, your utilization will appear higher and your score could drop. So, preemptively slicing your available credit will probably just hurt your score.
I'd say keep your credit in case you ever need it. You might get a new job and have the ability to pay for a large company expense out of pocket; you'll be reimbursed and you can keep those points. I think having the available credit just in case of a situation like that is useful, and to make sure whatever credit you do use results in a lower utilization.
If for some reason you apply for a new card and are declined or are put in pending because you have too much available credit, you can always call up and request to move credit around. Most banks will allow you to take existing credit and apply it towards the opening of a new account.
Again, my advice is that you don't reduce your credit limit, as doing so will probably hurt your score.
Check out these related posts for more info:
How Card Applications Affect Your Score
When to Cancel a Card
How to Get a Free FICO Credit Score from Certain Credit Cards
How Many Credit Cards Do You Have Open at Once?
If you have any additional questions, please message me on Facebook, tweet me @ThePointsGuy, or send me an email at info@thepointsguy.com.
[card card-name='Barclaycard Arrival™ World MasterCard®' card-id='22089566' type='javascript' bullet-id='1']
TPG featured card
at Bilt's secure site
Terms & restrictions apply. See rates & fees.
| 1X | Choose to earn up to 1X points on rent and mortgage payments with no transaction fee |
| 2X | Earn 2X points + the option to earn 4% back in Bilt Cash on everyday purchases |
Pros
- Choice to earn up to 1 Bilt Point per dollar spent on rent and mortgage payments
- Elevated everyday earnings with both Bilt Points and the option to earn Bilt Cash
- $400 Bilt Travel Portal hotel credit per year (up to $200 biannually)
- $200 Bilt Cash annually
- Priority Pass membership
- No foreign transaction fees
Cons
- Moderate annual fee
- Designed primarily for members seeking a premium, all-in-one card
- Earn points on housing with no transaction fee
- Choose to earn 4% back in Bilt Cash on everyday spend. Use Bilt Cash to unlock point earnings on rent and mortgage payments with no transaction fee, up to 1X.
- 2X points on everyday spend
- $400 Bilt Travel Hotel credit. Applied twice a year, as $200 statement credits, for qualifying Bilt Travel Portal hotel bookings.
- $200 Bilt Cash (awarded annually). At the end of each calendar year, any Bilt Cash balance over $100 will expire.
- Welcome bonus (subject to approval): 50,000 Bilt Points + Gold Status after spending $4,000 on everyday purchases in the first 90 days + $300 of Bilt Cash.
- Priority Pass ($469/year value). See Guide to Benefits.
- Bilt Point redemptions include airlines, hotels, future rent and mortgage payments, Lyft rides, statement credits, student loan balances, a down payment on a home, and more.