Nowadays, it seems easier and easier to get credit cards with astronomical limits – provided you have good credit and the income to support it. The question is, why would you want a credit card with a $20, 30, or even $40,000 limit? Certainly you wouldn’t want to charge $30,000 worth of, well, anything. That’s a debt load that can be absolutely crushing to all but the wealthiest people. I have a credit card with a $50,000 limit, and like to joke that it’s so I can buy a spare Navigator on the fly if I need to. Of course, I won’t be doing that any time soon, and I wouldn’t recommend that anyone else do it. So why the huge limit?

The key lies in your credit score. See, a large part of you credit score is determined by utilization – that is, the percentage of available credit that you use. Let’s say you charge an average of $2,000 on your card every month ( for things like food, utilities, cell phone bill, daycare, etc. ). If your credit limit is $2,000, then your utilization will be 100% – a very bad sign to creditors. Your FICO score will take a nosedive, since it looks like you are overextending yourself. You are using all of your available credit, and that’s not a good image to portray.

If your card had a $20,000 limit, and you charged the same $2,000, then you would be using just 10% of your limit. No creditor would bat an eye, and your FICO score will be as healthy as ever. So go for the high limits, just remember to use the cards responsibly – it’s not free money.

Categories: Credit