Friday’s Credit Tip #4: Avoid Excessive Use of Credit

If you have many lines of maxed out credit or several huge debts, you make a worse credit risk because you are close to “overextending your credit.” This simply means that you may be taking on more credit than you can comfortably pay off.

Even if you are making payments regularly now on existing bills, lenders know that you will have a harder time paying off your bills if your debt load grows too much.

The higher your debts, the greater your monthly debt payments, and so the higher the risk that you will eventually not be able to repay your debts. Plus, statistical studies have shown that those with high debt loads have the hardest time financially when faced with a crisis such as a divorce, unemployment, or sudden illness.

Lenders (and credit bureaus who calculate your credit score) know that the more debt you have, the greater problems you will have in case you do run into a life crisis.

In order to have a great credit score, avoid taking out excessive credit. Do not apply for every new credit line or credit card. Borrow only when you need it and be sure to make payments on time.

You should also know that taking out lots of new credit accounts in a relatively short period of time will cause your credit score to nosedive because it will look as though you are being financially irresponsible.

Check back next Friday for another credit tip!

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