One of the primary elements lenders look at when deciding whether or not to approve a mortgage loan is the applicant's credit score. Among the components making up the score is the debt-to-credit ratio. Where credit cards are concerned, this is the amount owed on cards relative to the credit available on the cards. High credit card limits can enhance a credit score when owners carry minimal debt. By the same token, however, high debt levels on cards with high limits can lower a credit score.
When They Help
Although credit cards aren't the only components, the debt-to-credit ratio makes up 30 percent of credit scores. Regardless of the credit limit, then, the rule of thumb is to keep card debt below this 30 percent marker. For consumers who pay off credit balances every month or who keep balances low, high card limits reduce the ratio and help increase your credit score.
How it Hurts
High card limits become a negative when card owners are too ready to take advantage of the credit limit without means of paying back the debt. A high debt-to-credit ratio is sometimes unavoidable-- in the case of emergency medical expenses, for instance. Often, however, impulse shoppers and undisciplined consumers find themselves faced with debt levels out of proportion to their ability to pay. Ultimately, the debt-to-credit ratio falls out of whack and hurts your overall credit score.
Effect on Mortgage
When high card limits contribute to high credit scores, mortgage lenders can offer borrowers lower rates. In the same way, high card limits that ding a borrower's credit score makes the loan riskier to the lender. This leads to an offer of a higher mortgage rate.
Boost from Credit Cards
An easy way for borrowers to boost credit scores is with an increase in card limits. The caveat here is the higher card limit must be utilized to lower the debt-to-income ratio. When card issuers approve an increase in credit limits and card owners don't increase spending, the ratio drops and increases.
Card owners can request credit increases by contacting the issuing bank by phone.
Romona Paden is a writer based in the Kansas City area. For more than a decade, she has contributed to general business and trade publications, as well as various websites.