Too little or too much credit? Here’s how to get back on track

Young Indian women dining together in restaurant and discussing how to get back on track with their credit. Young Indian women dining together in restaurant and discussing how to get back on track with their credit. Image:

In a Nutshell

When you have too little or too much credit, you may encounter some financial obstacles. But there are steps you can take to build healthy and balanced credit.

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Is your financial health suffering from credit imbalance?

On your credit journey, it’s common to run into the problem of having too little credit (especially if you’re just starting out). But did you know you can have too much credit as well?

Fortunately, it’s in your power to fix your credit imbalance and restore your financial health. Let’s take a look at what’s too little and what’s too much credit, and what steps you can take to get back on track.


Too little credit: The problem

There are several reasons you might have a paltry credit history:

  • You’re a young adult who hasn’t yet had time to build credit
  • You do most of your spending with cash or debit
  • Your lenders don’t report to the credit bureaus
  • You’ve closed or haven’t used your credit accounts in years

The trouble is that it’s hard to build credit when you have no credit (or what lenders call a “thin file”). Without a proven track record of your responsibility with credit, lenders are reluctant to offer you the benefit of the doubt (or any money).

So, when people with thin files end up in situations where they need credit, they might turn to some financially dangerous options — like payday loans and title loans — which could land them in serious trouble with debt.

Thin credit can have implications outside of your finances as well. Your home or auto insurance company could slap you with a surcharge. And a prospective landlord might be uncomfortable offering you a lease.

So how do you get out of this thin file rut?

Too little credit: The fix

When you were a kid, you probably eased into the world of bicycling. Rather than jumping directly onto a two-wheeler, you strapped on some padding and slowly gained skill and confidence with the help of training wheels.

In the same fashion, you can practice your credit skills and establish an attractive pattern of credit worthiness with the training wheels of the credit world: a secured credit card.

When you can’t qualify for a regular (unsecured) credit card because of your thin credit history, a secured card can get your foot in the door and give you a vehicle for building credit.

Just as with a regular credit card, many secured card issuers report your usage to the major credit bureaus. By treating your secured card responsibly, you flesh out a healthy credit history that may, in time, entice unsecured card issuers and other lenders to offer you access to additional credit.

The best unsecured credit cards for building credit

Once you have that access to additional credit though, you’ll want to make sure you don’t go overboard with the amount of credit you open. Here’s why.


Too much credit: The problem

How many credit cards are in your wallet? According to a 2016 Gallup report, Americans have 3.4 credit cards on average.

Having more — even a lot more — cards than average isn’t a problem in and of itself. But remembering to pay all those bills can be a real challenge. And it can be easy to let something slip through the cracks. Miss a payment or two and you could see your credit scores start to decline.

And how about when you apply for several new lines of credit within a short period of time? Lenders may worry that you’re overextended financially or struggling for credit approval. And, in addition to showing multiple notations for “hard inquiries,” your credit reports’ average credit age could plummet. Both of which could cause your credit scores to drop as a result.

Not sure if you’re afflicted by too much credit? Get some insight by checking your credit scores from TransUnion and Equifax for free with Credit Karma. Credit Karma lists out your credit score factors where you can see the behaviors that are sinking your scores.

FAST FACTS

What should you do if you feel like you have too many credit cards?

If you’re struggling to manage the credit cards you already have, it might be time to simplify your financial life. Decide how many cards you can reasonably handle, and then choose which cards you’ll keep using. Consider the following when evaluating a card:

  • Available credit limit
  • Current interest rate
  • Applicable rewards programs
  • Requirements for continued use (annual fee, minimum spending amount, etc.)
  • Ability to use it where you shop

Stick with just your chosen subset of cards until you feel that you can add another one to the mix. But don’t close those cards you aren’t using. Unless they’re costing you something in terms of an annual fee, those cards — even lying dormant — are contributing to the average-credit-age component of your credit scores.

Too much credit: The fix

If your credit scores are suffering because you’ve been binging on credit card applications, it could be time to ease up and make the most of the cards you already have.

Maybe you’ve been signing up for cards at your favorite retailers to get special savings. Maybe you’ve been looking to cash in on promotional offers for 0 percent intro APRs. Or maybe you’re maxed out on the credit you have now, and you’ve been trying to get some more.

Whatever your situation, there are ways to give yourself some financial breathing room without opening new cards. Consider the following tips:

  • Increase the limits on your existing cards. Bumping up your available credit will give you access to extra funds if you need them and may improve your credit utilization ratio. You may be able to request an increase online, or call customer service to make your case to a live person.
  • Call your card issuer and ask to have your interest rate lowered. Lower monthly interest payments can slow your debt problem and hopefully give you some extra cash for eradicating your debt entirely.
  • Look into balance transfers to your existing cards. See whether you can move your high-interest credit card debt to one of your lower-interest cards.
  • Pay down your debt faster. Sending in just the minimum payment? Free up some available credit and get out of debt faster by beefing up your monthly debt repayment amount, so long as it won’t put you in a worse financial situation.
How a balance transfer can help you pay down debt

Bottom line

Getting started with credit can be a real challenge. But if you open too many cards and credit accounts, you can quickly find yourself with too much credit and overwhelmed by keeping track of it all. The solution? Strive for a happy medium when it comes to your credit lines. Use what’s available to you responsibly, and you’ll find yourself on the path to a healthy relationship with credit.


Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors' opinions. Our marketing partners don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when it’s posted.