Credit Limit to Income Ratio

iVillage Member
Registered: 01-25-2006
Credit Limit to Income Ratio
1
Tue, 02-14-2006 - 4:30pm

Does anyone know if there is a recommended credit limit to income ratio?

I knew I had a crazy high credit limit if you put all my cards together but today I actually went through and put all my major credit cards in Quicken and figured out it is well above 2x my annual income (and that's not including some department store cards I have tucked away). The good news is that puts my balance to credit limit ratio well under 10% (whew...guess my pain threshold on debt was pretty low considering what damage was available to me...truly frightening) but once I pay that off, I am worried that all these cards and their related high credit limits are going to impact my credit score. I've never had any trouble getting credit (I'm on my 3rd mortgage, just got my HELOC this time last year at the best interest rate available). Since my last major loan there are 2 'new' cards but they actually were cards I had (Penneys and Sears) that converted themselves to Mastercards. I also just reviewed my credit report (1 of the 3) and it is clean. I have read lots online (including here) that closing the accounts can be a bad idea but I really think I should knock that down somewhat.

Here's my real question I guess. Are the only 'negative' impacts of closing an account for my credit bureau that it can raise my balance to limit ratio (the ratio I plan to have is 0%) and that if I close one of my oldest accounts (which I wouldn't do), it could shorten my credit history (which is 20+ years)? I would focus on some more recent accounts and keep my longstanding accounts and those that tend to offer some 'perks' now and again although my goal is to never carry a balance again. I am considering this because I plan to apply for a mortgage sometime in 2007.

Peg

Avatar for cl_phocid
iVillage Member
Registered: 03-26-2003
Thu, 02-16-2006 - 7:36am

Hi Peg - your understanding is similar to my own.

All my best,
Danni