Most individuals are aware that having too little credit might lower your credit score. This can include having a short credit history or having limited accessible credit because their credit cards are maxed up. Not everyone is aware, though, that having too much credit is also a possibility. It is a possibility that might lead to an imbalance that lowers your score as well.
This may sometimes make one of the traditional credit card advices—asking for a limit increase to lower your credit usage ratio—unwise. Although it might not result in a sharp decline in your score right away, it could cause problems later on. Creating new credit lines is equivalent.
Here’s what you need to know if you’re wondering how having too much credit might hurt you and how to determine how much credit is too much.
The Issue With Excessive Credit
Certain problems may arise if you have too much credit. Though not all of these are certain to occur, it is beneficial to know what could be expected in the area. You may use this information to make better credit decisions by learning about the dangers associated with creating additional accounts or raising your limits. A few of the difficulties that might arise from having too much credit are listed below.
More Credit Accounts Equip You with More Payments to Monitor
Even if it is feasible to obtain a single high-limit credit card, many people who have a lot of available credit have many open accounts. It is typically more difficult to keep track of monthly payments and due dates the more accounts a person has. This raises the possibility of failing to pay a bill or completely forgetting about an account.
Making sure you make your payments on time is crucial since a late payment can lower your credit score by up to 180 points. It is far simpler to accomplish so by minimizing the overall number of accounts you have and maintaining modest balances.
Having a lot of new accounts and inquiries might lower your score.
Occasionally receiving a hard credit draw or adding a new account to your credit report usually doesn’t have a negative, long-term effect on your score. However, you’re probably hurting your score if you’re constantly asking for limit hikes or starting additional accounts.
Lenders see you as a higher credit risk if your record shows multiple hard inquiries. Lenders may consider it as an indication of financial problems if they believe you are constantly looking for additional money, even if that doesn’t really reflect your circumstances.
This might also give them the impression that you are a riskier borrower than you now appear to be because you have just established accounts that aren’t yet shown on your credit report.
Additionally, opening many new accounts quickly after one another lowers the average age of all of your credit accounts. This makes up around 15% of your credit score; higher age scores are advantageous to you since they show lenders that you have been responsible with credit for a longer amount of time. Your score will probably suffer if you continue to lower the average age of your accounts.
Increased Borrowing Cap Can Restrict Your Choices
Having too much credit may prevent you from getting further credit. Let’s take an example where you earn $50,000 a year and have four5,000 in revolving credit lines. Lenders can be reluctant to grant you a vehicle loan, even if you’re just utilizing 10% of that credit limit.
Lenders may reject your application primarily for the reason that you could find it difficult to repay the loan if they finance your automobile and you later max out your revolving credit lines. In other words, you may fall into financial difficulties without seeking for new loans or experiencing a shift in income, which may worry certain lenders.
How Much Recognition Is Enough?
There isn’t a precise figure that indicates how much credit you have too much of. This is mostly because credit limitations and available credit are interpreted differently by individuals due to the fact that each person’s circumstances are unique.
Generally speaking, you should ensure that your credit limits are appropriate for your income level. If your salary is close to average, you may want to start with the total credit limit that Americans have, which is around $22,751 for all credit cards combined.
Maintaining Your Credit Limit
There are essentially two ways to make sure your overall credit limit doesn’t get too high. First, cut back on the amount of accounts you have. Make a list of every account you have that is revolving if you think you have too much credit. Provide information about each account’s age, monthly payment schedule, interest rate, and limit. This makes it simpler to decide which cards are better to close first.
Secondly, you might ask for a decrease in your credit line. Generally speaking, you should only take this course of action if you are still able to maintain a respectable credit usage ratio. That percentage should ideally remain at or around 30%, however it’s always preferable to be lower. Should a credit line decrease put you well beyond that amount, you might want to prioritize paying off your debt before submitting the request. In this manner, you may strive toward a total credit limit that is more acceptable to lenders while maintaining the highest possible credit score.
