A high credit limit could help or hurt your mortgage application. A credit utilization ratio measures how much of your available credit you’re using. High credit limits, if unused, can help lower your credit utilization ratio which in turn could strengthen your credit score. On the flip side, if you’re close to maxing out your available credit, you could be seen as a higher credit risk.
For example, if you have a $500 balance on a $1,000 limit credit card you’re using 50 percent. That same balance with a limit of $10,000 means you’re using just 5 percent. According to Experian’s Maxine Sweet, the lower your utilization rate the better, but less than 30 percent is good.
Some lenders however may view high credit limits as potential additional debt you could run up at any time, making it harder for you to get a mortgage. Ultimately you may want to consider only having as high a credit limit as you can handle responsibly – if a higher limit tempts you to spend, don’t get higher limits. Demonstrating that you have achieved good borrowing habits is an important factor that lenders consider when approving your mortgage application.
For some lenders you can also request to set a transaction limit to rein in spending and minimize damages if you become a victim of credit fraud. To get an idea of your credit usage, credit utilization ratio and to check for signs of credit fraud, check your credit report.
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This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc. © 2014 ConsumerInfo.com, Inc. All rights reserved.