Credit scoring formulas don’t punish people for having too many credit accounts, but too much debt can hurt scores.<\/p>\n
<\/p>\n
People who care about their credit scores tend to obsess about some things they probably shouldn\u2019t, such as the possibility they might have too much credit.<\/span><\/p>\n<\/div>\n Let\u2019s bust that myth right upfront: The leading credit scoring formulas, FICO and VantageScore, don\u2019t punish people for having too many accounts. And right now, having access to credit could be a lifeline.<\/span><\/p>\n<\/div>\n In June, the median duration of unemployment was nearly 14 weeks, according to the U.S. Bureau of Labor Statistics. \u201cMedian\u201d is the halfway point, which means half of the unemployed had been out of work longer. After the Great Recession, the median length of unemployment peaked at 25 weeks.<\/span><\/p>\n<\/div>\n Most households don\u2019t have enough <\/span>emergency savings<\/span> to get through extended unemployment. Access to credit ultimately could be what staves off eviction, keeps the lights on and puts food on the table.<\/span><\/p>\n<\/div>\n Obviously, you can have too much credit if it would tempt you to spend recklessly. And the more accounts you have, the easier it might be to forget a payment \u2014 which can be devastating to your scores \u2014 or fail to detect signs of fraud.<\/span><\/p>\n<\/div>\n But that doesn\u2019t mean you should worry about applying for the credit you need in the misguided notion that <\/span>having too much credit<\/span> is bad for your scores.<\/span><\/p>\n<\/div>\n \u201cIt\u2019s not about the number of accounts,\u201d says Ethan Dornhelm, FICO\u2019s vice president of scores and predictive analytics. \u201cIt\u2019s about how those accounts are handled.\u201d<\/span><\/p>\n<\/div>\n Before the advent of modern credit scores in the 1980s, lenders did worry that people who had access to a lot of credit would suddenly run up big balances, then default, says credit expert John Ulzheimer, who formerly worked for FICO and for Equifax, a credit bureau. But data scientists have since learned otherwise. People who had been responsible with credit in the past tend to continue being responsible.<\/span><\/p>\n<\/div>\n \u201cI’ve got a gajillion credit cards,\u201d Ulzheimer says. \u201cI could charge up every single one of my cards tomorrow, but I’m not going to do that.\u201d<\/span><\/p>\n<\/div>\n Although you can\u2019t have too much credit, you can have too much debt. Having big balances relative to your credit card limits, or a bunch of cards with balances, can definitely hurt your scores, credit scoring experts say.<\/span><\/p>\n<\/div>\n \u201cThere\u2019s no right number of credit cards,\u201d says Jeff Richardson, senior vice president marketing and communications at VantageScore Solutions. \u201cBut if you have 22 cards and they all have balances, that can add up.\u201d<\/span><\/p>\n<\/div>\n Even small balances and balances you pay in full can be problematic. Credit scoring formulas consider how many of your accounts have balances and how much of your credit limits you\u2019re using, among other factors. The scoring system uses the balances reported by your creditors, which are generally the amounts from your last statement. You could pay those balances off promptly, but they still show up on your credit reports and affect your scores.<\/span><\/p>\n<\/div>\n If you\u2019re trying to <\/span>polish your credit<\/span>, Ulzheimer recommends using one or two credit cards and not charging more than 10% of their limits. That may require making more than one payment each month to keep the balances low or asking issuers for higher credit limits.<\/span><\/p>\n<\/div>\n If you do use more than a couple of cards, paying the balances off before the statement closing date will typically result in a zero balance being reported to the credit bureaus, and that can be good for your scores.<\/span><\/p>\n<\/div>\n Be careful about canceling unused cards, however. Closing credit accounts can hurt your scores, since it reduces your total available credit. If you\u2019re concerned a lender might close an unused card, you can use it occasionally and immediately pay off any charges so you have a zero balance on the statement closing date.<\/span><\/p>\n<\/div>\n If your credit scores are already high, however, Ulzheimer questions how much effort you should invest in making them higher. Once your scores are over 760 on the commonly used 300-850 scale, you\u2019re getting the best rates and terms lenders offer.<\/span><\/p>\n<\/div>\n Another thing people worry about, but probably shouldn’t: inquiries. Applications for credit typically have a minor impact on your scores and any impact fades within a year. But Ulzheimer says people are often convinced otherwise.<\/span><\/p>\n<\/div>\n \u201cIt’s crazy how many questions I get about inquiries, and they are so meaningless in the grand scheme of things,\u201d Ulzheimer says. \u201cPeople love to obsess about little things that don’t really have a whole lot of influence.\u201d<\/span><\/p>\n<\/div>\n\n\n To read full article, visit nerdwallet.com<\/a><\/em><\/p>\n\n\n\n DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt.\u00a0 Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email\u00a0<\/em>contact@dmcconline.org<\/em><\/a>.DMCC is located at 1330 SE 4th Ave, Suite F, Fort Lauderdale, FL 33316.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Credit scoring formulas don’t punish people for having too many credit accounts, but too much debt can hurt scores.<\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[16],"tags":[],"class_list":["post-1435","post","type-post","status-publish","format-standard","hentry","category-credit"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p5shu1-n9","_links":{"self":[{"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/posts\/1435","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/comments?post=1435"}],"version-history":[{"count":3,"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/posts\/1435\/revisions"}],"predecessor-version":[{"id":1993,"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/posts\/1435\/revisions\/1993"}],"wp:attachment":[{"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/media?parent=1435"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/categories?post=1435"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/tags?post=1435"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}It\u2019s not how many cards, but how you use them<\/span><\/h2>\n<\/div>\n
Credit-building strategies<\/span><\/h2>\n<\/div>\n