Episode 24: Credit Limits are Not Very Important


I’ll talk about why the yearning for credit cards with high limits is overrated and comes with great cost.


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Rough transcript:

You’re listening to the Hurdy Gurdy Travel Podcast. I’m your host, Justin Vacula, here to help you travel the world at next to no cost through credit card points, miles, benefits, and rewards. Make money, save money, and take advantage of great deals!

Visit my website at HurdyGurdyTravel.com where you can contact me, read episode transcripts, complete a free credit card questionnaire to receive tailored recommendations, follow me on social media, view helpful resources, and listen to past episodes.

Thanks for joining me for episode 24 – Credit Limits aren’t very Important. I’ll talk about why the yearning for credit cards with high limits is overrated and comes with great cost.

One unfortunate trend I see in some online credit card spaces, especially from people new to miles and points, surrounds an intense want for large lines of credit. Instead of prioritizing total returns a credit card will provide including big signup bonuses, good benefits, and earning potential, some focus on credit limits. Signing up for cards with high limits and low overall value comes with tremendous opportunity cost – lots of value is left on the table and the credit lines likely won’t make much of a difference when thinking about credit scores and approval chances for future cards.

Credit limits have never been a consideration in my process of determining which credit card to apply for. If an issuer gives me around $10,000 or more, that’s great, but some cards I have applied for have given me far less: $6000, $5000, and even $1000 – the lowest limit on my Barclay’s Jet Blue Business card likely because Barclay’s Bank isn’t lenient with credit lines for new applicants. I knew I might get a very low credit line, but that was okay because I only needed to spend $1000 to get the welcome offer of 60,000 JetBlue miles along with other perks including in-flight discounts and free checked bags. Since I have many other cards and won’t be spending much on the Jet Blue card anyway, the $1000 limit won’t limit me much. Had I said no because of a small credit limit, perhaps favoring a card with a high limit and low returns, I would have lost tremendous value.

Consider the Navy Federal Credit Union cashRewards credit card. Many yearn for this card noting high credit limits of $15,000 and more for some who are approved. First, just because some get a high limit doesn’t mean that you will – this depends on income you report and other factors including randomness from banks. In many cases, people with similar financial profiles experience different results, so the credit lines aren’t a guarantee. Worse yet, some will not even be approved even though Navy Federal Credit Union is generally lenient. The cashRewards card comes with a very small signup bonus of $150 for spending $3000 in 90 days and 1.5% cashback on all spending.

Many, many, many cards give far more than $150 as a signup bonus and 1.5% cashback on all spend isn’t anything special either. Those who have solid credit profiles can be approved for premium cards offering more than $500 in value just from signup bonuses. Even semi-frequent travelers can get points and miles, benefits, and much more compared to cashback offers. Further opportunity cost comes considering various bank rules – some issuers like US Bank, Bank of America, Barclay’s Bank and Chase won’t be eager to approve when one has several recent inquiries and opened accounts.

Those just starting with credit, either rebuilding or having a thin credit profile, can start with cards like the Discover IT Secured and the US Bank Harley Davidson Visa and gain far more than what Navy Federal Credit Union offers especially when they will later be in a good position to get other US Bank cards in the future since they established a relationship. If one faces declines for the Discover and US Bank cards, there’s likely a significant issue with one’s credit profile including outstanding balances, collections, and accounts which need to be removed. Maybe, too, more time is needed or one should look into becoming an authorized user on a very trusted credit card owned by a significant other, family member, or good friend.

When I started with credit, before I knew much of what I know today, I got the Capital One Quicksilver card, Citi Doublecash, Amazon Prime store card, and Bank of America AAA card and faced little to no issues years later getting the cards I have now. I didn’t need Navy Federal Credit Union. I didn’t need cards with 20k credit limits, I was fine. Sadly, I applied for cards I would never apply for today, I didn’t know better, but now I can make more informed applications in the future.

What might be some motivations for people who want large credit lines? Perhaps they see a large credit line as a sort of personal achievement, something to flex, or something to feel cool about. Why does this matter? Why is this more important than better benefits, more points, and more cashback? Personally, I find it awesome to get great returns from banks, take great vacations, and save money. Indeed, my priorities aren’t the same as others’ in all cases, but it really pays to question priorities and change them when they are hallow. I encourage people to do much better and am grateful for those who have educated me.

Perhaps people think high limits are needed to get premium cards? This isn’t true as I mentioned, but there could be some truth for people carrying balances from month to month and spending a large amount on their cards because credit utilization doesn’t suffer as much. For instance, having a $5000 balance on a card with a $20,000 limit will be 25% utilization vs. a card with a 10k limit leading to 50% utilization. High utilization will interfere with credit card approvals, but there are ways to play the game smarter.

If, for some reason, you need to carry a balance and aren’t paying interest (I don’t advocate for paying interest especially when and if you’re overspending), this can be done better on business credit cards which don’t appear on your personal credit report including cards from Chase, American Express, and Barclay’s Bank. If you’re facing difficulties getting approved for business cards and will have a large balance, you can consider paying in full before your balance is reported to credit bureaus and/or placing charges on your card shortly after a low or no balance is reported. Transferring balances may also be an option, but this often comes with opportunity costs because many cards with balance transfer offers don’t provide great benefits and this also adds more inquiries and opened accounts to your credit report.

Perhaps people just starting with credit or rebuilding want these high limits because they believe it will be a faster process to win the credit card lottery as past podcast guest Cakeologi would say rather than having a more patient, prudent strategy. Again, I don’t find a compelling case that high limits and many cards will lead to later approvals for more premium cards. This will, though, lead to being locked out of getting valuable Chase cards and then will require even more waiting at some point because of running into too many recent inquiries. Just take your time when starting so you can later be in a great position to get high value cards.

In podcast episode 14, I spoke about the importance of increased offers. It would be a shame to be getting several low value-generating cards with high credit limits missing increased offers because of so many recent inquiries. At some point, well, we won’t be waiting forever, we’ll be getting those cards with great offers, but spacing out inquiries will be valuable.

Right now, for instance, I can extend my available credit limits with a Citi Costco Visa business card, but the card offers very little: no signup bonuses and marginal returns from categories I have better covered on other cards – it’s simply not worth an inquiry, it’s better to wait. Even outside of Chase cards, US Bank will be releasing a new Altitude Connect card in weeks to come – see podcast episode 17 for analysis. I’m also interested in current increased offers with UBS. Even if these two banks weren’t offering great deals, I’d prefer to wait for better deals to come rather than settling for low offers. Early in the game, it’s easier to find really high value cards, so waiting won’t be as prudent especially after Chase cards, but later on high value can be harder to find. It’s important to have a good strategy, to think ahead, to research, rather than gun-slinging applications getting shoddy cards.

Another question for those who want high credit limits – are you going to use the high credit limits? Will you be spending more than $10,000, just to give one example, each month? If so, it’s better to spend across multiple cards rather than just one so you can get multiple signup bonuses and even target high spend goals in some cases like the American Express Hilton Business card which gives a free night certificate after spending $15,000 in one year. Low spenders don’t have much to gain from high limits and in many cases one can spend a large amount on American Express charge cards which don’t have fixed limits. Especially now in April of 2020, so many listening will have significantly decreased their spending, so these limits aren’t being used.

Just like interest changes, cash advance fees, and many other things associated with credit cards, I pay very little attention to credit limits. Instead of focusing on credit limits, I focus on value cards will provide coming from signup bonuses, benefits, and bonus categories. High credit limits especially aren’t needed for many with solid credit profiles. Those just starting with or rebuilding credit can get by just fine without prioritizing cards with possible high limits which won’t give many benefits.

This credit card space can be complex as it’s quite easy to make mistakes applying for bad cards, running into declines which could be avoided, missing good offers, not knowing many tips & tricks, and not knowing how to evaluate offers. I’m here as always to help. You can complete my free credit card questionnaire form at hurdygurdytravel.com and, for a more focused approach also supporting my efforts, you can subscribe on my Patreon page. A $30 a month subscribion grants a once a month hourly call, a one-time custom podcast episode, and advance notifications of podcast guests who will answer your questions.

Thanks for listening and stay tuned for more content!

Visit my website at HurdyGurdyTravel.com where you can contact me, read episode transcripts, complete a free credit card questionnaire to receive tailored recommendations, follow me on social media, view helpful resources, and listen to past episodes.

Support my work through Patreon, PayPal, the Cash App, and referral links by visiting the donate tab on my website. Subscribe on YouTube at Hurdy Gurdy Travel Podcast; like my Hurdy Gurdy Travel Podcast Facebook page; follow HGtravelpodcast on Twitter; and follow Justin Vacula on Instagram.

Schedule a free 15-minute consultation with full-time business coach and YouTuber Cakeologi who can help you formally establish your business, build business credit, and get premium business credit cards. When you select from various paid services after the free consultation, I will receive credit for referring you. Listen to Cakeologi on episode twelve of my podcast.

Visit my other podcast at stoicsolutionspodcast.com where you can find practical wisdom for everyday life inspired by the ancient philosophers of Greece and Rome.

Thanks to generous patrons and fans of this podcast who help support my work. Have a great day.

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