How much is a responsible credit card limit? I began searching for an answer to this question with little success. It seems credit card issuers and educators are far too eager to tell you that a higher credit card limit is always better.
The rules of thumb for everything else in the world of personal finance are straight forward enough: multiply your annual income by 2.5 to calculate how much home you can afford, save 15% of your gross income for retirement, and never use more than 30% of your total credit card limit. These rules are convenient because they are so simple. What’s difficult is finding out how much a responsible level of credit card limit is to begin with. You could get approved for a credit card and celebrate when you’re offered a limit of $10,000, but when you begin to spiral out of control you’ll wish you’d never signed the dotted line.
I finally found an answer I liked at Finder.com. The article gave me the most direct and simple response. It states that you should have a total credit limit of no more than 30-50% of your monthly gross income. For example, if you make $5,000 per month you would want no more than $1,500 – $2,500 available. They also recommend that if you’re more on the side of being eager to spend you should opt for the 30% level.
Featured image courtesy of: