Excessive Credit Is Bad For Your Credit Score

Although it is better to have more credit than less, there are occasions where excessive credit can hurt your credit score. If you have several lines of credit or credit cards but only use them moderately, lenders will probably consider you of low risk.

However, if you have use them extensively and each of them has a significant outstanding balance, then you will be consider high credit risk because you are close to overextending your credit .

Simply put, you are taking on more credit than you can comfortably pay off. You may be making payments on existing bills on time but lenders know that you will have a difficult time paying off your bills if your debt grows too much.

For lender to have confidence in you, your debt to credit ratio need to be low. If you have a credit of $10000 and your existing debt is $2000, your debt to credit ratio is 0.2 because you only utilize 20% of your total credit. On the other hand, if you have a debt of $8000, your debt to credit ratio is 0.8, which means your debt is approaching your total credit limit. Lenders will be wary and not likely to approve your credit or loan application.

The larger your debts, the more you have to pay per month. This also means the risk default on your bills become higher. Statistical studies have shown that those with high debt-to-credit ratio will have a very difficult time financially when faced with a crisis such as a divorce, unemployment, or sudden illness.

Lenders know this facts and so do the credit bureaus. Thus the credit bureaus will likely give you a lower credit score in view of the risk you present.

Thus, in order to have a great credit score, avoid taking out excessive credit. The temptation of you getting into more debt is just too great. Do not apply for every new credit line or credit card that you do not need immediately.

One thing you should know is that applying for many new credit accounts in a short period of time will cause your credit score to nosedive. This is because it will look as though you are being financially irresponsible.

In short, you should stick to one or two credit cards and one or two other major debts, such as car loan or mortgage loan, in order to get a good credit score. Most lenders like to see that you are able to handle a range of credit responsibility. Thus a good mix of credit type can give your credit score a boost.

About the Author

If you want to improve your credit score yourself, check out this credit improvement resource at NetCreditGuides.com. For more useful credit tips, drop by http://www.NetCreditGuides.com/blog and receive a free gift too.

Author Profile: stephenchua

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