The Disadvantage of Too Much Credit

It used to be advised that it was good to have a lot of credit cards and to carry a balance on almost all of them. But this is simply not true. In fact, having too many credit lines available can hurt you. You are considered a higher risk to lenders.

Creditors look at the total credit limit you have on each account. The reasoning is that you would be able to go out tomorrow and charge that much making you a greater risk for defaulting on repayment. So you don't want to have a drawer full of credit cards that you aren't using. Much better advice would be to keep only one or two cards and pay them off quickly.

Having few long-term relationships with your creditors will raise your score verses opening and closing accounts every year with teaser rates. Keep one or two long-term accounts. They do not need to have balances they just need to be open.

Another consideration is how many accounts you have open and what are the total combined credit limits of those accounts. If you have 8 cards with $2,000 limits, you could conceivably go out and charge $16,000 worth of stuff today. That can be scary for potential lenders who are deciding whether to give you a home or auto loan. So don't just cut up that card, call your creditor and close the account so it doesn't show up as available credit. And, one false move (late payment) and you can lose your teaser interest rate and the interest rate could be even higher than before. That can be especially painful when you were counting on the teaser rates to lower your monthly payments. Can they do this? Yes. It is all disclosed in the fine writing that nobody reads. And remember its not when you postmark the payment that counts, it is when it's received. Also check for annual fees. And avoid the “cash advance." Many creditors charge higher interest rates for this.