We’ve all heard the phrase, “No credit is as bad as bad credit” and we’ve also heard that “too much credit is also a bad thing” So, what is the right amount of credit? How do we know we have enough and how do we know if we don’t?
Credit can be a complicated area to understand but don’t let it be. There are many services that you have access to… for free, that will help you determine what is best for you. But we will get to those a little later on.
FICO (Fair Isaac Corporation)
This is what it all boils down to, your FICO score. This is the score that predicts if you get that mortgage, the score that predicts the interest you pay on an auto loan and even the score that can hinder you getting the job you’ve been looking for! When it comes to your FICO Score the number can range from 350 to 850. 350 obviously being the lowest which in this case a low number isn’t ideal. And 850 being the highest which means you have an A+ credit score and you will be getting approvals left and right.
But how is that score created?
30% of your score is based on the amount of credit you use. This I can’t stress enough. You do not want to be maxing out your credit card on a monthly basis! NO WAY! Instead if you need to make a large purchase, pay the card off sooner than later. Or make that purchase and put that card aside until you can make a payment. The average usage of your card has changed over the years some people feel you should only use 7% of your limit a month, others feel 10-20% is a good number to go by.
10% is new credit. This one has always been hard for me to understand, I hear you should open up new credit cards on a regular basis but then I see that 10% is new credit. So what is the deal? I’m not sure but I would not suggest opening up tons of credit cards, I would find 1 to 2 that you LOVE and stick with those.
15% is credit length. This one is a challenge. As a Millennial, I find it challenging that I rank so low in this area and yet it’s 15% of my score! But in due time we will get there.
10% Credit mix. Do you have a good mix of credit? Maybe an auto loan and a credit card or you might have some student loans and a mortgage. For some reason, experts like to see a mix of credit.
35% of your credit is made up of your payment history. So it’s very important that you are making payments ON TIME. Even if it’s the minimum amount due. Just be aware of the due date for your payments because this can make or break your credit.
Now that we have the basics, how much is too much?
The answer is tricky. Even after hours of researching, yes I spent a lot of time on this blog... because I want to know too! The answer is based upon you and your finances.
Everyone is going to be given different credit limits and loan amount based on your income. But what it boils down to is you don’t want to be in over your head. You don’t need to apply for every credit card you see with 0% interest. If you see an auto loan for 1.89% Apr you don’t need to get a new car just because the rate is so low. Instead live within your means.
Tropical Financial is here to help you get the best financial deals. That’s why we offer Free financial checkups to allow the community and more so our members the opportunity to see where they are financially and how they can improve and enhance their finances. Plus we have great products and discounts available to our members to help keep your payments affordable!
Talk to TFCU representative and see if your credit is too much credit!