Can You Have Too Much Available Credit?
- It’s not really possible to have too much available credit, so long as you use at least some of it.
- What’s more important is how much of your available credit you use — using too much can hurt your score.
- Try to use less than 30% of your credit limit, though 1% to 10% is ideal.
You may have a bunch of active credit cards, with all the available credit you could need. But can you have too much credit? The short answer is no.
In fact, having access to a lot of available credit could help improve your credit score, so long as you use that credit carefully.
On the other hand, if you keep rolling over credit card or line-of-credit debt that take up most of your credit limits — or even worse, max them out — then your score may suffer.
There’s no “perfect” amount of available credit — it depends on how much of your credit limit you’re using, also known as your credit utilization ratio. As a general guideline, try to keep your utilization below 30% across all accounts (ideally, even lower) for the best credit scores.
According to a LendingTree study, consumers with the highest credit scores had an average credit utilization ratio of just 10.20%.
Let’s say you have a single credit card with a $5,000 limit. To stay below a 30% ratio, you’d want to keep your card balance below $1,500.
What does ‘too much credit’ really mean?
Available credit and credit limits are associated with revolving debt, like a credit card or a home equity line of credit. With revolving debt, you can borrow as much or as little as you’d like, up to your limit. As you pay down your balance, you’ll free up more of your available credit.
Having a high credit limit on its own isn’t something that can hurt your credit — it’s using too much of that limit that can tank your credit score.
When can having too much available credit hurt your score?
The technical name for the amount of credit you use is your “credit utilization ratio.” This ratio compares the credit you use with your total available credit, making up 30% of your credit score.
This is why your score will likely drop if you max out your credit cards. A high credit utilization ratio can be a red flag to lenders. It may suggest that you don’t know how to manage your credit, or that your money is stretched and you’re more likely to default.
Because of this, credit agency Experian suggests using no more than 30% of your available credit, in order to avoid harming your credit score.
At the same time, if you don’t use your credit cards and/or other lines of credit at all, the lender might close your account or lower your limit.
Ideally, Experian says, you should try using less than 10% of your limit — but without dropping to 0% credit utilization.
You should also be aware that if you apply for multiple credit cards within a short time period, each application will trigger a hard credit inquiry that’ll temporarily impact your credit.
Likewise, multiple, back-to-back inquiries could paint you as a risky borrower.
When high credit limits can be a good thing
You can help build trust with lenders by showing you can use credit cards and other debt responsibly.
Low credit utilization can help you keep a healthy credit score. This’ll make it easier to get approved for new credit in the future (whether a credit card, mortgage or personal loan), and it could even help you get a lower insurance rate.
Further, a LendingTree study found that in some cases, raising your credit score can save you tens of thousands of dollars on your debt payments. Plus, having excellent credit, or at least good credit, can help you borrow money in an emergency.
Signs you may have too much credit
Having more credit than you really need can be a problem if it causes you to spend more than you really need.
Here are a few warning signs that having high available credit may be too much of a good thing:
- Your credit card balances are gradually increasing: Carrying high-interest debt, such as those on credit cards, can get expensive. You may think you have a lot of credit left, but debt can grow quickly — especially if you only make the minimum payment.
- You’re tempted to overspend: Even if your debt level seems stable right now, knowing that you have available credit at your fingertips might entice you into overspending. Be sure you can manage all that credit well.
- Your debt-to-income (DTI) ratio is rising: It’s not just how much of your available credit you use that affects your score, but also how big your debt payments are compared to your income. This is called your “debt to income” (DTI) ratio, and a good one is considered to be 35% or lower. So even if you have a lot of credit left, make sure that your total debt payments aren’t outpacing your earnings.
How to manage your credit limits wisely
Take some simple steps to stay on top of your credit limits and credit score:
- Watch your credit usage: Get in the habit of checking your credit card balances to stay up to date on exactly how much of your available credit is still there.
- Read your credit report: Request your free credit reports from the three main bureaus to make sure your credit history is correct and that you’re aware of all of your debt.
- Use a credit monitoring tool: A free credit monitoring tool like LendingTree Spring can keep you informed about your score and credit health.
- Request a credit limit increase: If your credit limit goes up, your credit utilization ratio should go down. So if you need more available credit, contact your credit card issuer directly to request a limit increase.
When done right, managing your credit limits and keeping an eye on your available credit can help you get cheaper rates on your debt and save you money.
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