Earlier this week while checking out at the supermarket, the clerk asked me, “Would you like to save 10% today by opening our store credit card?”
“No thank you. I have enough credit cards,” I replied.
How many credit cards is enough? At what point does having too much credit hurt your score and dock points?
If you plan to apply for a home or auto loan in the near future, these are very important questions, because credit cards play a major role in determining your score. And your score dictates whether or not you qualify for the best loan at the best interest rate.
Too Much Credit Lowers Your Credit Score
“I have 17 relationships,” said a woman who wanted to buy a home. I had asked about her credit and was dismayed to learn how over-extended she was. Not only did she carry too much debt, but her abundance of credit cards put her in a below-average credit rating.
There are two ways having too much credit harms your score:
- If your balance-to-limit ratio is even one dollar over 50 percent, you are losing credit points. If your balance is 80 percent or higher, you are losing even more points. On the other hand, if your balance is below 30 percent of the limit, you gain points.
- If you have too many open accounts, your score might suffer, because you have the potential to bury yourself in debt — especially if some of the accounts are newly opened. On the other hand, if you have had ten open accounts for ten years and you have managed them perfectly, then you can still have a top score.
Three open credit cards is good. Three is enough. You want at least two of those three to be a major card, such as Visa, MasterCard, or Discover. Individual store cards such as Target and Macy’s are not major cards; therefore, they are not weighted as heavily. When you have two major credit cards, you don’t need a wallet full of individual store cards.
If you have maintained perfect credit for over three years with five to ten cards, you should be fine. Do not close your longstanding major credit cards, because they are giving you valuable credit score points. On the other hand, if you have 17 “relationships,” close some of those store cards, and ask for it to be reported as “closed by consumer request.”
Too Little Credit is Bad for Getting a Mortgage
Whether you want to borrow half of a million dollars or less than a hundred thousand dollars, mortgage lenders want to see that you have a track record of managing credit. One credit card is not enough to establish a strong credit pattern.
FHA wants at least two credit accounts to obtain a mortgage. Conventional loans (the preferred loan) wants at least three credit accounts. These accounts need to be established for at least six months in order to count toward your score.
Debit cards do not establish credit or go on your credit report. Therefore, a debit card does not give you credit score points.
Get Smart About Your Credit!
Don’t be in the dark about your personal credit rating. Learn the rules so you can control your own credit score. If you have made mistakes in the past, you can start today in establishing perfect credit for your future. If your credit report contains errors, take action now and get it cleared up. Don’t procrastinate, because the credit bureaus have 30 days to investigate and respond to your request. And if they don’t get it right the first time, you might have to send a second letter.
Don’t make the colossal error of ordering your credit online. Write that down and remember it. You give up important rights when you order online. Attorneys and certified credit repair specialists do not order online, and neither must you.
Listen Up! Credit cards are not your friends. Do not collect them like you’re collecting buddies. Credit cards are like razor sharp tools that have the ability to help or hurt.
There is much more to be said about credit, and I will continue to write posts. In the meantime, please help me educate good folks by posting to Facebook, Twitter, and passing on the website address http://www.AskCarolynWarren.com.
Thank you and use credit wisely!