Limited Credit Lines

You May Not Qualify For A High Credit Limit

We all know that those with good credit have the potential to get more credit than those with bad credit. But how serious is this dilemma for you and your credit score? FICO, the group of bankers and finance experts that first developed the credit rating system, state that 30% of your credit score is based on what they call "amounts owed."

The amounts owed section of your credit report comprises all of the debts reported to the credit agencies. In the case of a loan, the amount owed is shown in relation to the original amount borrowed. In credit card cases, this figure is represented by the amount owed in relationship to the total available credit. Most credit experts will tell you that the amount you have in debt should be no more than 35% of your total available credit.

For those with bad credit, we often see the pattern of balances rising without the corresponding rise in credit limits. This alters your total "credit utilization" and can negatively impact your credit rating. What's worse is that the lack of sufficient credit limits can reduce your purchasing power and flexibility.

The best advice is to maintain low balances on credit cards and make your payments on time each month. We also recommend making more than the minimum payment each month to avoid unnecessary interest debt which can lead to increased balances.