Your credit limit is the predetermined upper most boundary of your credit card spending capacity. So, if you’ve got a $10,000 credit limit that means you can charge up to $10,000 worth of products and services. The credit limits on your credit cards are commonly reported to the credit reporting agencies, Equifax, Experian and TransUnion. But, there are some issuers who choose to not report credit limits to the credit bureaus. What impact, if any, does this have on your credit scores?
Your credit limits are used to calculate “utilization” metrics. Utilization is another way of referring to your “debt to limit” ratio. Your balance is divided by your credit limit, that figure is multiplied by 100 and it yields your “revolving utilization” percentage. That percentage is an important component in your FICO credit scores and your VantageScore credit scores. The higher the percentage, the riskier you are and the lower your score could be.
According to FICO the consumers who have the highest scores have an average debt to limit ratio of 7%. That means their balance on a $10,000 limit card is no more than $700. And, the aggregate balances on their credit cards is also no more than 7% of their aggregate credit limits.
If the credit limit is missing from your credit report then it becomes more difficult to calculate the debt to limit ratios. But, it can still be done. In lieu of the credit limit FICO’s scores will use the “high balance” figure that is also commonly found on a credit report. If your credit limit is missing and your reported historical high balance is, hypothetically, $10,000 and your balance is $1,000 then you are 10% utilized on that card.
The chain of command goes like this…credit limit is ALWAYS used if it’s present. If it’s not present and the historical high balance figure is…then the high balance figure is used. High balance is never used in lieu of the credit limit figure if the credit limit figure is present.
If both the credit limit AND the high balance figure are missing then that particular credit card is NOT considered for the debt to limit measurements. It can’t be. You have to have some figure with which to divide the balance by.
Score Impact
A missing credit limit can either help, hurt or be neutral to your credit scores. If your limit is $10,000, and it’s missing, but your high balance is also $10,000 then it’s a wash. If your limit AND your high balance are missing and the credit card is maxed out then it’s helping your credit scores because a heavily leverage card is not being considered in your debt to limit measurements. If your limit is $10,000, and it’s missing, and your high balance is $1,000 AND your balance is also $1,000 then that card is essentially 100% utilized, which obviously is not good. You can play around with the numbers however you like to come up with other scenarios where a missing limit would be helpful, or hurtful.
Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. You can follow John on Twitter here.