Given my existing credit score and annual income, how do I calculate what a reasonable credit limit for me should be?
I'm really looking for an order-of-magnitude estimate. e.g. should it be 40% of my income? 5%? 300%?
Is there anything else that would drastically affect the answer? (E.g. how much of the year I work, etc.?)
Assuming you're not an extremely high risk, banks will gladly approve a credit limit of several times your monthly income.
They want you to carry a balance. That's where their profit is.
Another way of saying this: "We'll give you more than enough rope to hang yourself."
Now, as far as how much is reasonable for you to charge, you should pay off your balance in full each month. If you can't do that, then the level of credit usage is unreasonable.
If you are a pay in full card user, the math runs pretty simple. Say you earn $48K, or $4K/mo. You try to run most expenses through the card to get whatever rewards, so the most 'regular' spending can be will be $2K or so (mortgage/rent usually can't be charged). If we want the $2K to average a 10% usage, you ideally want open credit lines to total $20K. You can have as much as $4K on the bill and still be at 20% utilization.
The above creates a 'rule of thumb' goal of about half of one's salary as the goal for available credit. With a caution to readers, this is not advice to carry that amount in outstanding debt. If the credit agencies didn't look at utilization, 10% of one's salary would be enough in most cases.
Rules of thumb are meant as a starting point. Some people avoid cards for whatever reason. One card with a $2000 line might be enough to rent a car and hotel, and be used for little else. Others play the reward game, and this advice is geared toward that kind of heavy user.
