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Thread: There is such a thing as having to much credit

  1. #1
    God/dess Deogol's Avatar
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    Default There is such a thing as having to much credit

    Often I read on here all these moves to better one's credit score and increase one's available line of credit.

    I figured that I would point out there is such a thing as "to much available credit."

    I am not talking about the current amount owed on cards, I am simply saying "to many cards" (or lines of credit.)

    Basically it revolves around the concern:

    X has a nice ratio for balance/available_credit and pays regularly - BUT the ratio ability_to_pay/available_credit is not acceptable.

    The consequences of having to much credit available is:

    -- Hard to get lower interest rate lines of credit
    -- They will just flat out say NO, your income cannot afford all this credit
    -- They will give you a line of credit, but a much smaller amount.

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    Banned Melonie's Avatar
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    Default Re: There is such a thing as having to much credit

    to clarify a bit ...

    Deo's point is that potential lenders view the availability of unused credit lines as a potential additional debt burden. After all, there is nothing preventing a borrower from maxxing out every credit card they have tomorrow. Because of new creditworthiness policies, potential lenders must take this possibility into account when analyzing a potential borrower's ability to repay.

    For example, say there's a person seeking a $25k car loan with a payment in the neighborhood of $600 per month. Say this person also has two major credit cards plus a handful of store credit cards that all have very low balances but substantial credit limits. And say that same person has $1000 per month available for 'discretionary spending' based on their income level, local costs of living, rent and utility costs etc.

    In the old days, the car loan approval would have been a shoo-in - based on the fact that cards with paid off balances did not represent additional debt. However, today the potential lender must look at a 'what-if' scenario that includes maxxing out all of these credit cards. If that were to happen, the minimum payments on all of the cards could rise to $500 per month ... at which point the person would NOT have sufficient 'discretionary spending' money left with which to continue making the car loan payment.

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