How Much Credit Is Too Much Credit? - Refresh Financial

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How Much Credit Is Too Much Credit?


A recent Canadian Payroll Association survey found out that nearly half of all working Canadians surveyed are living paycheck to paycheck. Drowning in debt, most survey respondents told the association that they don’t envision ever living debt free.

What is Too Much Credit

This brings up an important topic. How much credit is too much credit, and what happens when we have too many different credit products in our name?

One of the biggest reasons you want to limit what credit you do open in your name to a minimum, is that every new credit product means a new minimum payment. Even if you try to keep your spending down on them, chances are you’ll need to make a minimum payment on each credit product you carry even a small balance on. If you have two credit cards with a minimum payment of $10 every month, that’s just a $20 expense each month added to your bills, rent and other payments. However, if you have 4 credit cards with $10 minimum payments, a loan, and a line of credit, you’re probably exceeding $200 in credit payments each month.

It Lowers Your Credit Score

If you’re applying for a lot of credit in a short time frame, you’re also going to take a hit to your credit score. What that looks like, on paper, is that you have found yourself in some sort of financial dire straits and are fishing for anything lenders will give you to get out it. Even if you have a good explanation, and it’s not that you’re in money trouble, it still looks that way to the credit bureaus and future lenders. If you must seek out new forms of credit, space it out by several months or even a year. Don’t pile it on all at once.

Don't be Tempted by Too Much Credit

Opening new forms of credit can, depending on your spending habits and self-discipline tendencies, tempt you to make use of more credit. If you tend to spend, you could find yourself in more debt than you can handle. Keep your debt low, by not opening new forms of credit. That way, you don’t have to exercise your self-discipline every time you’re faced with a purchase opportunity - instead, use your self-discipline once to say, “no more credit”. If it’s not there, you can’t spend it.

Pay Off What You Have

While it is good for your score to have a more diversified mix of credit accounts in good standing, it can be difficult to maintain this. If you’ve struggled with your credit in the past, and you’re looking to improve your score, opening new lines of credit is not the answer. Instead, pay off what debts you already have. Paying down debts is going to boost your credit score. It is the fastest way to a better credit rating.

Like many things in life, there is no quick fix. It’s good practice to only take out the credit you need.

Do you think it’s a good idea to keep your credit accounts to a minimum? Let us know in the comments!

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