Having Too Many Credit Cards Liability or Asset?
Tips By: freescore
Worrying about having too many credit cards is a very common concern and one that someone interested in maintaining a good credit score would ask. However, the answer depends on a wide range of things: your credit history and credit management, credit balances, and several other important factors. Credit cards are very convenient and can be used to boost your credit score over time. Nevertheless, because they’re so easy to use, many people overuse them and end up hurting their credit score due to high balances, late payments, and other undesirable factors.
Let’s look at some of these factors:
High credit card balances
Whether you have three credit cards or 23, high credit card balances hurt your credit score. The higher your balances, the higher your risk of defaulting is in the eyes of lenders and credit bureaus, so this can hurt your credit score quite a bit.
Your debt-to-credit ratio
This fancy term simply measures the total amount of your current credit card balances against your total available credit. You want to keep this ratio at or below 35 percent of your total available credit or less; ratios of 40 percent or more will begin to do serious harm to your credit score, since higher ratios equal greater risk from the lenders’ and credit bureaus’ perspectives.
Length of credit history
It isn’t your oldest credit card that’s most important here. Rather, it’s the average age of all your open credit accounts that interests lenders and credit bureaus the most (they’re part of your credit history). Having a variety of credit cards that are several years old or older helps your credit score in two ways:
More cards add to your total credit limit and help your debt-to-credit ratio.
Lenders like predictability, and older credit cards that are in good standing promote confidence in your credit management and help your credit score.
Remember, however, that constantly applying for new credit cards works against your credit score, because it suggests an urgent need for more money.
Your credit score will suffer if you’re late making a payment. It won’t matter how many credit cards you have or how long you’ve had them. Making payments on time accounts for 35 percent of your credit score (the biggest part).
Having “too many” credit cards only affects your credit score if you don’t handle them properly. Your credit score really depends on your credit history and whether you pay your bills on time. Since your credit score plays such an important factor in your personal and financial life, it’s in your best interests to take good care of it. If you keep your balances low, use older credit cards every once in a while to keep them active, and pay your bills on time, your credit cards will work for your credit score rather than against it.
Good Debt vs. Bad Credit — Understanding Credit Card Debt
Tips By: freescore
Debt is such a bad word. Or is it?
Today, many find themselves drowning in financial debt from credit cards and other financial obligations. If you’re one of those looking for a life jacket, it is important to know that there’s both good and bad debt.
Knowing the difference between each and how to manage them will not only give you opportunities for stashing away money for a rainy day or buying a new TV without credit cards, but it also could help you control what hits your credit report.
Mention “good debt” and most people turn an eyebrow and give you a “are you crazy?” look. This is because the word “debt” typically causes people to think of something bad — not something good. Debt usually means high credit card bills, high-rate loans, and other less-than-ideal financing situations.
Although it’s not as common, there is some good debt. For instance, the Motley Fool considers OK debt as anything with an interest rate well under 10% – preferably with some tax advantages. Examples of these include: home mortgages and student loans. However, vehicle loans are on the borderline since they can satisfy the low-rate requirement, but almost never appreciate.
Although there’s good debt, bad debt is the most prevalent type of debt in our country now. With an average credit card debt of $8,000 for each household in America, we understand why most debt has a negative tone to it.
When you’re looking at your credit card debt and wondering if you’re accruing more bad debt than good debt, consider these:
Charging more than you pay: It’s simple — if you have a larger hole than the dirt you shovel into it, it will never become full. This is considered bad debt.
Maxed out cards: Not only do maxed out credit cards show your dependency on them, they also impact your credit score utilization rate, which could make a negative impact on your credit score.
Knowing the difference between good and bad debt is essential to staying ahead financially.
Remember, good debt is an investment that creates value, including: home mortgages or business loans. Bad debts are when you purchase disposable or durable goods using high-interest credit cards, but don’t pay the balance in full.
Use this knowledge to keep track of good and bad credit and try to take advantage of good credit whenever possible.