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How much credit is too much to have?

People often wonder how high their credit limits should be and how much credit is too much. The problem is that there is no standard answer, as one's credit usage and needs vary from person to person.

Each person's credit usage, limits, and credit history is sure to be different. There are a few things to consider when determining if you have too much credit available to you.

How much you spend monthly on your credit cards.

The general consensus on how much of your credit limit to use at any given time is around 30%. This does not mean that you should always use that much, just as you shouldn't use every bit of credit up to the limit that you are given.

The debt to credit ratio is important for determining FICO scores, spending habits, and how well your utilize your available credit.

It isn't bad to have a large credit limit (on one card or spread across a few cards) if you control your spending and pay your balance off month to month.

For example if you have a combined credit limit of $20,000 dollars spread across 3 credit cards and you regularly use about $4,000 of that limit each month; you'll be using just 25% of your available total limit. If these 3 cards have limits of $6,000 dollars, $4,000 dollars, and $10,000 dollars that 4,000 dollar usage amount should be spread across each card.

$4,000 dollars a month on the 10K limit card is nearly 50% of that card's total limit, 100% of the 4K card, and over 75% of the 6k card. As you can see, your combined total credit limit and each card's limit play a part in determining how much credit you use.

You want a large enough credit limit so that you can comfortably make your purchases on the cards on a regular basis without going over the limits or using a high percentage of the available credit. For scoring purposes, using 30% or less of your credit limit each month is ideal.

How you treat your credit card limits.

If you treat an increased credit limit as an invitation to spend more, than you have too much credit. Just because you have more credit available to you does not mean you can afford to use the additional credit.

If you find yourself unable to pay off your balances in full month after month, your credit limit is likely too much for your financial needs.

At the same time, even if you pay your bills in full each month, if you use a high percentage of your limit each month in responsible spending it could affect your FICO score due to the high usage percentage.

Determining if your available credit is too high for you personally depends on your spending habits, how you treat your available credit, and if you pay off your balances in full each month.

Learn more about this author, Maxwell Payne.
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