Now that we know that it’s best of have at least $50,000 in “available credit” on your personal credit report let’s dig a little deeper. Having over $100,000 in available credit is even more ideal but most people don’t have this and “how” to get there should involve a plan or a strategy. It’s best to build up to your goal of $100,000+ over time. Ideally, you would want to open 1-2 new revolving accounts per year – 3 at the most depending on how they were obtained. Remember that for credit scoring purposes it’s not as much about whether it’s a personal credit card or a business credit card but, rather, it’s whether that tradeline shows up on your personal credit report or not. So what this means is that some business credit cards can help you get to your goal if that’s what you want. As you read this please keep in mind that our main purpose at Hawkeye Management is to help entrepreneurs and small business owners borrow money the RIGHT way and we have spent the last 3 years exclusively developing our Unsecured Business Line of Credit solutions so all of credit solutions are geared toward helping small business owners get business credit.
I don’t know of any situations where anyone I’ve seen has had “too much” available credit. However, I have seen many credit files where someone obtained their credit lines the wrong way and it resulted in multiple revolving accounts that all had very low credit limits. If you can build or perfect your credit the right way you’ll find that it’s much better to obtain your $50,000 or $100,000 with as few different credit lines as possible. Let’s say you get $100,000 in total credit lines. In this scenario it’s better to have that $100,000 from 6-9 different lenders or credit lines. I recently saw a credit file with over 20 open revolving credit lines and the total available credit was barely over $50,000. This resulted in triggering some reason codes (FICO reason codes) that weren’t good for the FICO score. It also makes it very difficult – nearly impossible – to get any new credit lines with higher credit limits. This is because of how credit card underwriting works. For most credit card companies, when they underwrite your application and determine the credit limit they will establish for you they look at things like your other credit limits and highest past balances. If you’ve got 15 other credit lines and none of them extended more than a $5000 credit line then do you think the next lender will suddenly give you a $20,000 credit limit even though nobody else has ever given you more than $5000? This is one of the many reasons why unsecured lines of credit are not just about FICO scores. The FICO score is often like the ticket into the party but if you meet the basic FICO scoring requirements of the lender then they usually use other data within your report to determine your credit line. For this reason it’s very common for someone with a 725 FICO score to get a higher credit line than someone else with a 780 FICO score.
In Part 1 of this blog we talked about all the credit lines that have been lowered or closed completely. So what should I do if this happens to me? Well, first of all let’s talk about what to do BEFORE this happens so that it’s less-likely to happen to you. One, keep your utilization low. Under 25% is ideal. One of the most common reasons for credit lines being closed is because you’re overly-utilizing the available credit you have. There’s a well-known lender strategy called “chasing the balance” where lenders lower your credit limit down to your new balance every time a payment is made. In other words, keep your balances low. Second, use your credit cards. Some people have their accounts lowered or closed due to not using them. We don’t want you to rack up debt but use each of your credit cards at least every few months. Buy a tank of gas, a pair of socks, or something so that your account doesn’t show up on the lender dormancy reports that show inactive accounts.
Stay tuned for Pt 3 of this 3 part series and learn more about what to do if your credit line is lowered or closed.
