RESEARCH & LEARN

Can You Have Too Much Credit?


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TERMINOLOGY

The idea of having too much credit might sound like a foreign concept to many people that are unfamiliar with how credit works. However, it is possible for an individual to have too much credit. Here are a few things to consider about how having too much credit can hurt you.

FICO Score Calculation

When it comes to your credit, your FICO score is extremely important. Your FICO score is going to help determine whether you are going to be approved for loans or not. It will also play a role in what types of interest rates you are able to secure on mortgages and other loans. Having too much debt is going to negatively affect your FICO score. There are several different factors that are involved in calculating your FICO score. One of the main criteria is the debt load of the individual. The credit bureau is going to look at the total amount of debt that you have as compared to how much credit you have. If the debt is higher than 30 percent of your available credit, this is not going to reflect positively on you. Having a lower amount of available credit is going to help you keep your FICO score at a reasonable level.

Possible Fraud

In today's society, it is not uncommon for people to have several credit cards and other types of credit accounts. When you have multiple accounts with available credit on them, this is basically like opening the door for identity theft. If someone were to gain access to your account, they could potentially rack up large bills on your credit. When you have available credit just sitting there, you are going to be inviting identity thieves to come along and use it. If you keep your available credit amounts low, you are going to help lower your chances of fraud.

Applying for Too Much Credit

When some people discover that they can apply for credit, they go overboard with it. Instead of getting one credit card or one store account, they go around opening as many accounts as they possibly can. This is going to negatively affect your credit score as well. When you try to apply for credit at once with many different places, this is going to look bad on you. Credit bureaus do not like to see people that are trying to get multiple credit accounts opened close together. When you are in trouble financially, you will typically resort to utilizing multiple credit lines in order to keep yourself afloat. Many people do this right before they file bankruptcy as a last resort. Even if you are not doing it for this reason, the credit bureaus are going to look at it this way. This means that they are going to dock your score based on the assumption that you do not know how to handle your money or your credit.