Is Too Much Credit and Too Many Credit Cards a Bad Thing?
Author: Metal
Posted: Mon Mar 19, 2007 5:06 pm
Post subject: Too much credit a BAD thing?
So I was reading this article: http://moneycentral.msn.com/content/Banking/creditcardsmarts/P120478.asp
And I noticed this "Lenders view all open credit lines as potential debt. Too much unused credit may affect your ability to qualify for a home or a car loan."
So can too much credit be a bad thing?
For example I'm 21 and have a 20k limit on my AMEX cash and 16k limit on my Citi Divident, for a total of 36k. On an average month I use up between 1-3% of my limit. So would this quality as having too much "unused credit"?
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Author: RacieRacer
Posted: Mon Mar 19, 2007 6:13 pm
Post subject: Re: Too much credit a BAD thing?
Metal wrote:
So I was reading this article: http://moneycentral.msn.com/content/Banking/creditcardsmarts/P120478.asp
And I noticed this "Lenders view all open credit lines as potential debt. Too much unused credit may affect your ability to qualify for a home or a car loan."
So can too much credit be a bad thing?
For example I'm 21 and have a 20k limit on my AMEX cash and 16k limit on my Citi Divident, for a total of 36k. On an average month I use up between 1-3% of my limit. So would this quality as having too much "unused credit"?
Mortgage lenders are the ones who like to say this and tell ya to close accounts. I can't help but think it's b/c they want your FICO scores to decrease so they can charge you a higher interest rate, because that's what would happen to most folks. FWIW, I've had mortgage lenders tell me all kinds of other wacky stuff like 'don't pull your own credit because it will hurt your score'. (not true)
My advice is don't close those accounts and don't ask for your credit limits to be decreased.
Author: Verne
Posted: Mon Mar 19, 2007 9:30 pm
Post subject:
I agree with RacieRacer,
"Too much available credit" is a myth when it comes to lending, although banks and mortgage companies love to chant it. I followed their advice years ago and suffered for it.
When you suddenly close a bunch of accounts, your FICO score goes down, your utilization goes up, any decent BT offers and new credit options dry up, and, if you have any debt, you've run out of places to move it.
CardRatings.com is the most comprehensive source for comparing credit card offers. Please visit CardRatings.com to view the best rated credit cards!
Author: hdporter
Posted: Tue Mar 20, 2007 2:13 am
Post subject:
Just to add to the "on target" remarks thus far: The article clearly contradicts itself -- it suggests that you shouldn't close accounts shortly before applying for a major loan since it can depress your FICO score. Are we to believe that closing an account after obtaining the loan won't have some adverse impact the next time you seek out a major loan again?
Further, if a credit denial because of "excess" credit availability were something that had even modest prevalence, you can bet you'd hear a LOT more about it here. It's a safe bet that it rarely comes up as a factor. When it does, I would imagine there are other factors, such as delinquencies, that played a role as well. Truth is, the only cases I recall where such an event was reported involved smaller lenders who were more conservative in their lending practices.
I don't think it's a risk to be entirely dismissed. But I'm satisfied tht it's very unlikely I would run into the problem -- and if I should, I'd merely consult another lender.
I will say that aside from lender concerns, there can be good reason for keeping your lines modest and few in number ... if you have any reason to suspect you could be tempted by circumstances to excessively use credit. Keeping a reasonable cap on credit is one way to force fiscal responsiblity.
If you have a card with a $20K limit, it's far easier to be cavalier about indulging yourself impromptu while on vacation than if you're hemmed in by a $5K limit. Likewise, if you're conducting a major shopping run, such as buying new furniture (where a $4K bed may be tempting, but you really should stick with $2K).
Author: scarymary
Posted: Tue Mar 20, 2007 7:25 am
Post subject:
As I worked with several loan officers over the past few years as a very "hands-on" Realtor (I liked to learn a lot about all aspects of the business), I learned a few things from the other side...
Lenders really do look at the debt/income "potential" that a borrower has however, it really doesn't come into play as far as what your rate will be. Lenders have so many programs that one is surely to fit your needs at a rate you'd be happy with.
There is never a reason to close an account because someone else tells you that it looks bad or whatever. It's your account and your money. If the outcome will hurt you, don't do it.
The absolute worst hit you can have on your credit is a late mortgage payment. If you have a late mortgage payment on your credit history within the last 12 months, don't bother applying for a mortgage or refinance... no lender will touch you... (or your rate would be astronomical).
When applying for a mortgage, your current mortgage payment/rent payment is not included in your monthly bills since once you buy the new house, it won't exist.
I don't know why this is but it's happened to my clients several times. It's better to have several small balances on a few credit cards than one huge balance on one credit card (this is assuming that you aren't PIF each month). I had a client with a $32,000 Discover Card bill. His finance charges were over $317/mo... he still qualified for a $350,000 house at 5.25% by himself but it took some work (and a nice downpayment check from his mother in law... LOL).
If you don't like what the lender is telling you... go to another lender. There are 1,000's of them and they all want your business. But stay away from any fly by night company. I can't tell you how many buyers I had sitting at the closing table with all their belongings sitting in a truck outside the new house whose lender bailed at the last minute. I would run, call up one of my guys and get the deal on the table in 24 hours. So many of my buyers promised their mortgage "friends" or "Uncle Joe" the business and 9 times out of 10, couldn't close the deal. And every time, I would hear... "We shoulda just called your people in the first place..."
Stay away from internet only lenders that have no history, Money Warehouse, Mortgages R Us and what have you may have interesting teaser rates but no longevity... I've seen ads for a $400k mortgages at 1.5%... apply, get approved, pay your app fees and never hear from them again. Besides, anyone charging 1.5% on a mortgage would have to be charging some pretty hefty fees in the small print to make up for the loss....... It's a racket and it is making millions.
There are good lenders out there. Trust your realtor when buying and stay away from mortgage brokers... Stick with bankers who have no middle man to pay. Large real estate companies have in-house lenders that aren't going anywhere, assist you with questions thru-out the entire process, usually attend the closing to make sure that you understand all the paperwork and are there after the fact in case you have any questions.
Sorry this got a little OT but my intentions are good. I just like to hear myself type!! LOL But still, if it helps even one person, this post has done it's job. I see here a lot, people quoting or mentioning what they hear analysts talking about but this is just info straight from someone who was just in the trenches and saw what's really going on out there.
Have a fabulous day all!!!
CardRatings.com is the most comprehensive source for comparing credit card offers. Please visit CardRatings.com to view the best rated credit cards!
Posted: Mon Mar 19, 2007 5:06 pm
Post subject: Too much credit a BAD thing?
So I was reading this article: http://moneycentral.msn.com/content/Banking/creditcardsmarts/P120478.asp
And I noticed this "Lenders view all open credit lines as potential debt. Too much unused credit may affect your ability to qualify for a home or a car loan."
So can too much credit be a bad thing?
For example I'm 21 and have a 20k limit on my AMEX cash and 16k limit on my Citi Divident, for a total of 36k. On an average month I use up between 1-3% of my limit. So would this quality as having too much "unused credit"?
CardRatings.com is the most comprehensive source for comparing credit card offers. Please visit CardRatings.com to view the best rated credit cards!
Author: RacieRacer
Posted: Mon Mar 19, 2007 6:13 pm
Post subject: Re: Too much credit a BAD thing?
Metal wrote:
So I was reading this article: http://moneycentral.msn.com/content/Banking/creditcardsmarts/P120478.asp
And I noticed this "Lenders view all open credit lines as potential debt. Too much unused credit may affect your ability to qualify for a home or a car loan."
So can too much credit be a bad thing?
For example I'm 21 and have a 20k limit on my AMEX cash and 16k limit on my Citi Divident, for a total of 36k. On an average month I use up between 1-3% of my limit. So would this quality as having too much "unused credit"?
Mortgage lenders are the ones who like to say this and tell ya to close accounts. I can't help but think it's b/c they want your FICO scores to decrease so they can charge you a higher interest rate, because that's what would happen to most folks. FWIW, I've had mortgage lenders tell me all kinds of other wacky stuff like 'don't pull your own credit because it will hurt your score'. (not true)
My advice is don't close those accounts and don't ask for your credit limits to be decreased.
Author: Verne
Posted: Mon Mar 19, 2007 9:30 pm
Post subject:
I agree with RacieRacer,
"Too much available credit" is a myth when it comes to lending, although banks and mortgage companies love to chant it. I followed their advice years ago and suffered for it.
When you suddenly close a bunch of accounts, your FICO score goes down, your utilization goes up, any decent BT offers and new credit options dry up, and, if you have any debt, you've run out of places to move it.
CardRatings.com is the most comprehensive source for comparing credit card offers. Please visit CardRatings.com to view the best rated credit cards!
Author: hdporter
Posted: Tue Mar 20, 2007 2:13 am
Post subject:
Just to add to the "on target" remarks thus far: The article clearly contradicts itself -- it suggests that you shouldn't close accounts shortly before applying for a major loan since it can depress your FICO score. Are we to believe that closing an account after obtaining the loan won't have some adverse impact the next time you seek out a major loan again?
Further, if a credit denial because of "excess" credit availability were something that had even modest prevalence, you can bet you'd hear a LOT more about it here. It's a safe bet that it rarely comes up as a factor. When it does, I would imagine there are other factors, such as delinquencies, that played a role as well. Truth is, the only cases I recall where such an event was reported involved smaller lenders who were more conservative in their lending practices.
I don't think it's a risk to be entirely dismissed. But I'm satisfied tht it's very unlikely I would run into the problem -- and if I should, I'd merely consult another lender.
I will say that aside from lender concerns, there can be good reason for keeping your lines modest and few in number ... if you have any reason to suspect you could be tempted by circumstances to excessively use credit. Keeping a reasonable cap on credit is one way to force fiscal responsiblity.
If you have a card with a $20K limit, it's far easier to be cavalier about indulging yourself impromptu while on vacation than if you're hemmed in by a $5K limit. Likewise, if you're conducting a major shopping run, such as buying new furniture (where a $4K bed may be tempting, but you really should stick with $2K).
Author: scarymary
Posted: Tue Mar 20, 2007 7:25 am
Post subject:
As I worked with several loan officers over the past few years as a very "hands-on" Realtor (I liked to learn a lot about all aspects of the business), I learned a few things from the other side...
Lenders really do look at the debt/income "potential" that a borrower has however, it really doesn't come into play as far as what your rate will be. Lenders have so many programs that one is surely to fit your needs at a rate you'd be happy with.
There is never a reason to close an account because someone else tells you that it looks bad or whatever. It's your account and your money. If the outcome will hurt you, don't do it.
The absolute worst hit you can have on your credit is a late mortgage payment. If you have a late mortgage payment on your credit history within the last 12 months, don't bother applying for a mortgage or refinance... no lender will touch you... (or your rate would be astronomical).
When applying for a mortgage, your current mortgage payment/rent payment is not included in your monthly bills since once you buy the new house, it won't exist.
I don't know why this is but it's happened to my clients several times. It's better to have several small balances on a few credit cards than one huge balance on one credit card (this is assuming that you aren't PIF each month). I had a client with a $32,000 Discover Card bill. His finance charges were over $317/mo... he still qualified for a $350,000 house at 5.25% by himself but it took some work (and a nice downpayment check from his mother in law... LOL).
If you don't like what the lender is telling you... go to another lender. There are 1,000's of them and they all want your business. But stay away from any fly by night company. I can't tell you how many buyers I had sitting at the closing table with all their belongings sitting in a truck outside the new house whose lender bailed at the last minute. I would run, call up one of my guys and get the deal on the table in 24 hours. So many of my buyers promised their mortgage "friends" or "Uncle Joe" the business and 9 times out of 10, couldn't close the deal. And every time, I would hear... "We shoulda just called your people in the first place..."
Stay away from internet only lenders that have no history, Money Warehouse, Mortgages R Us and what have you may have interesting teaser rates but no longevity... I've seen ads for a $400k mortgages at 1.5%... apply, get approved, pay your app fees and never hear from them again. Besides, anyone charging 1.5% on a mortgage would have to be charging some pretty hefty fees in the small print to make up for the loss....... It's a racket and it is making millions.
There are good lenders out there. Trust your realtor when buying and stay away from mortgage brokers... Stick with bankers who have no middle man to pay. Large real estate companies have in-house lenders that aren't going anywhere, assist you with questions thru-out the entire process, usually attend the closing to make sure that you understand all the paperwork and are there after the fact in case you have any questions.
Sorry this got a little OT but my intentions are good. I just like to hear myself type!! LOL But still, if it helps even one person, this post has done it's job. I see here a lot, people quoting or mentioning what they hear analysts talking about but this is just info straight from someone who was just in the trenches and saw what's really going on out there.
Have a fabulous day all!!!
CardRatings.com is the most comprehensive source for comparing credit card offers. Please visit CardRatings.com to view the best rated credit cards!
Labels: Can One Have Too Much Credit? Is It Bad to Have Multiple Credit Cards?, Is There Such a Thing As Too Many Credit Cards?
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