The Backlash of Having Too Many or Using Too Much on Your Credit Cards

When one thinks of problems with their credit, the things that usually come to mind are collections and charge-offs. While these things are bad, they are not the only thing that can 'hurt' your credit. It is actually possible to hurt your credit score and your chances of getting new credit cards simply by having too much credit or from using too much of your available credit -- and is even a large reason for many credit card denials.

What's more is that your credit score can be so low from having too many new credit cards or using too much on your cards that it can be comparable to, or even 100+ points lower than, someone who has had a recent bankruptcy. That's right, someone who had had a recent bankruptcy may be approved for new credit cards, while you are denied. Furthermore, it may take just as long for you to redeem your credit score, as those who have had a recent bankruptcy. Let's take a look at some ways that having too much credit or using too much of your available credit can hurt your credit score or get you denied by lenders.

Since part of your credit score is based on how much of your available credit is currently being used, you can lower your credit score by simply buying stuff. This is referred to as utilization. Even if you are making payments on your credit cards, and not allowing them to go late or delinquent, your score will still stay low until you get them paid off. Even using just 30% of your credit limit can decrease your score. 

To put this into perspective, that would mean just $90 on a $300 credit limit, $300 on a $1,000 credit limit, $1,500 on a $5,000 credit limit and so on. Furthermore, the more you use on your credit cards, the lower your score will go. For example, using 30% of your limit will lower your score more than using just 10% of your limit, using 50% of your limit will lower your score more than using just 30% of your limit, and using 75% of your limit will lower your score more than using just 50% of your limit. 

To try and even out their utilization, some consumers will apply for many credit cards and use a little bit on each. So instead of having 1 credit card with a $25,000 limit and using $12,500, which would result in a 50% utilization on that card and overall, they will get more cards and spread the debt around. 

This looks like lower utilization on each credit card, even though the overall utilization is the same. Once they reach 30% or 50% overall utilization, they will apply for more credit to lower that figure. Some creditors are privy to this trick and will deny applicants who they suspect are doing this -- even if those people are using little of their current credit and have no credit blemishes. 

So, if you are considering purchasing a $3,000 plasma TV on your $5,000 credit card, you should consider how long it will take you to repay the debt and if you plan to apply for any other credit cards or loans within that time.