Low Credit Limits - The Truth Behind The Myth

Like the notion that no credit equals good credit, getting lower limits may well be very detrimental to your credit score. To comprehend exactly how this functions you need to understand utilization rates, or what we call the 30% rule. Credit bureaus expect to see that you're sustaining lower than 30% of your respective credit limit continually. If you happen to go over the 30% marker, you are looked upon as living beyond your means and this may be reflected in your credit score.

The drawback with lower limit credit cards is the fact that it will be simply too easy to go beyond the 30% rule. In the event you have only a $250 credit limit, you may never have a balance of over $75 without creating a negative reaction to your credit rating. Moreover, a number of credit card companies report your credit limit lower inaccurately. This means you could be right under $75 every month, however, your credit limit is noted at $200 instead, placing you over the 30% limit.

In some cases, when you’re repairing your credit you will have to work with these lower balances. This will take careful planning to prevent any complications with errors. However, for those who have higher account balances, you do not want to ask for your rates to get reduced. You'll never have “too much available credit.”

The best way to be sure you don’t exceed the 30% rule is using auto payments. You’ll need to plan a regular monthly payment for any bill, such as a gym membership or any other monthly payment you'll want to make to be taken straight from your credit card. Then, through your bank account, schedule yet another auto payment to pay the credit card for the same amount.This might sound like using a few additional steps, even so it will keep your accounts active and you will control precisely what spending is occurring on your cards so you won't go over the 30% limit.

By: Phil Tirone

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