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Is it Possible to Have Too Much Available Credit?

May 5, 2014
Credit Card Basics, Credit Cards
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We adhere to strict standards of editorial integrity. Some of the products we feature are from our partners. Here’s how we make money.

The world of credit can be confusing. This is why the Nerds field a lot of difficult questions about credit and credit scores.

For instance: Can you have too much available credit? There’s a lot of conflicting information out there about this topic, so we dug into the details and found the answer. Interested? Take a look at the information below.

Available credit and your credit score

Having too much credit – meaning too many open credit accounts, like credit cards or other loans – sounds like it would be a bad thing. But given the complexity of credit scoring, we wanted to be sure.

To find out if having too much available credit can impact your credit score, we reached out to Anthony Sprauve. He’s a senior consumer credit analyst at FICO, the company responsible for the credit scoring model most widely used in the U.S. When asked if having too much available credit can negatively affect a person’s credit score, he replied:

The FICO Score does not take into account if a consumer has too many credit accounts. The two most important factors it looks at are:
1. Payment history – is the consumer making the minimum payment required on time every time. This accounts for 35 percent of the FICO Score.
2. Credit Utilization – is the consumer keeping the balances on their revolving credit (typically credit cards) below 30 percent of their available credit. This accounts for 30 percent of the FICO Score.
A consumer can have many credit accounts and a high FICO Score if they are following these two guidelines closely.

This means that the number of open credit accounts on your credit report isn’t influencing your credit score one way or another. But the way you use those accounts certainly can.

There are potential pitfalls to having too many open accounts

Even though having a lot of available credit doesn’t directly impact your credit score, there are potential credit pitfalls to having too many open accounts:

Paying late – If you’re juggling too many accounts, conditions are ripe for a late payment. As Sprauve noted above, making on-time payments accounts for the largest portion of your credit score. Forgetting to do so could cause your score to plummet.

Utilizing too muchHaving a lot of credit doesn’t necessarily mean you’re using a lot of credit – but it could. If a lot of open accounts is leading you to utilize more than 30% of your available credit, you could be headed towards a lower score.

Opening too many accounts at once – Acquiring several credit accounts over a long stretch of time is fine. But opening too many at once is viewed by the credit bureaus as a sign that you’re in financial trouble. In fact, 10% of your score comes from new credit inquires. Wait several months between new credit applications to keep your score in good shape.

» MORE: Closing a credit card? Make sure to do these 5 things

Set yourself up for success

Even though there are no direct credit score implications associated with having too many open accounts, you might be concerned about the indirect pitfalls. So how can you set yourself up success? Here are the Nerds’ top tips:

  • Get comfortable with one credit card before taking on several; if you’re new to credit, stick with one card for a while. Be sure you’ve got the hang of paying on time and in full before adding more cards to your portfolio.
  • Only apply for credit you actually need; don’t get sucked in by the glamor of signup bonuses and start applying for every card on the market. If you need a new card, apply for one. If not, don’t.
  • Think twice about increasing your credit lines; upping the limits on your existing cards could increase your credit score by improving your utilization ratio. But tread carefully — if this will tempt you to overspend, it’s probably not worth it.
  • Keep a close watch on your payment due dates; maintaining several credit accounts is fine as long as you’re careful to pay on time (see above). Set reminders on your phone or calendar so you don’t miss one.
  • Don’t overuse the credit you have; if you’re managing lots of accounts, keeping your credit utilization in check is key. Again, never use more than 30% of your available credit.
  • Close cards strategically; if you’re trying to cut down on your credit accounts, be careful how you close them. Use this resource to make sure you’re following the proper procedure.

The bottom line: Having too much available credit won’t hurt your credit score, but you’ll still need to be careful. Be sure to keep the information above in mind!

Stack of cards image via Shutterstock