How Much Credit is Too Much Credit?

Almost everyone these days uses credit cards; while it became a trend a few years back, you can't help but agree on how it is easy to use a credit card without worrying about cash and the dilemma of paying your bills. Nonetheless, there are times, I am sure, that you are faced with the question: would what I have be considered too much credit?

Unfortunately, that is a decision you have to make for yourself. Some say that you can have in fact have too much credit while others think there is no such thing as too much credit.

What Is Too Much Credit?

Unfortunately as said above, there is no decisive answer to that since we are talking about personal finances. What works for one person won't work for the next and vice-verse. However there are a few categories you can look at.

First, there are those that dislike the fact that they own a credit card from the beginning; usually these people have managed to exceed the normal gauge for using a credit card "sanely" — picture a young teenage girl loose in a mall of famous brands with no limits to what she can buy. In which case, the safest solution for this girl is to use a debit card.

On the other hand there are those that don't mind having a little debt on the credit card, which means that whenever they have a balance on the credit card, they pay it within the time limit allowed before any interest is applied. Yet, there are those who would like to carry a mediocre percentage of their credit card limit. With this choice, they might be risking a bad credit score; however if they play it right, they can stay on the good side.

Finally there are those that max out their card, whether they never pay fees, make their payments on time, or they accumulate interests, they always try to keep to their limit and never go over it. For these people, they may have too much credit.

How Can I Determine If I Have Too Much Credit?

It might seem like a daunting task, however, it is really simple once you understand how to figure it out. Excluding your rent and your mortgage, add up all your credit. That means you will need to add your personal loans, credit card balances, school loans, and car loans for instance. Now figure out your monthly payment for each loan; if the payment is variable (means it differs from month to month), deduce an average, and don't forget to include the credit card payments for each month as well. Make sure you are being honest with yourself, don't try to use minimum numbers when estimating the payment for your credit card balance.

Now what you need to do is calculate the debt rate -- to do that all you need to do is this:

Debt Rate = Total Monthly Debt Payment / Monthly Pay.
That formula will produce your debt rate.

On the other side of the rainbow, some people say that there is no such thing as a "too much credit." However, that is concerning your credit score. According to FICO (one of the largest companies in the United States that handles credit scores), the more credit you have the more score you will get. In this case, the higher the credit limit you have, your score increases and that will allow you access to more services and features from some service providers (for instance larger loans at banks).

On the other hand, if even you do so, as said before, the matter is subjective; you will be your own judge as to whether it is too much or not. More or less, it is how you look at it and what your needs are more than anything else.

Nowadays, credit cards are everywhere and there is not just one option but a multitude and it is always best to asses which bank you will want to deal with as well as what kind of services you have. It is strongly advised that you search through the available banks and sift through their services and options.