Why is "too much" credit "bad"?

[redpat]

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@Anonymous wrote:

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@Anonymous wrote:

Also not everyone has the luxury of having an emergency fund.  For them their credit cards are their emergency funds.  Or even if you have an emergency fund something beyond what you financially expect comes up like a medical emergency, lay off, theft, family issues, etc.

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Right, but let's say someone has a vast amount of liquid assets to cover all of that. 

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As a college student I would assume those liquid assets would be Mom's or Dad's?

I don't know many college students or many young adults starting out flush with liquid assets, unless some were given to them.

[Anonymous]

Whether someone has credit lines equal to their annual income or 3X their annual income (or more) or anywhere in between, IMO if any of those people were to "max out" their credit lines at any given time due to hundreds of thousands of dollars in medical expenses or whatever reason, there's no way any of those people can pay that back.

If your salary is $30k a year (you're taking home $20-25k) and you max out $30k in CC debt, after paying bills and such there is no way you can physically pay that back in any sort of realistic time frame.  Same goes for a guy taking home $100k a year and running up $400k in CC debt. 

I just find it funny what creditors consider "too much" credit when realistically a large majority of people probably have "too much credit" as in if they ever went balls to the wall and used it all they more than likely wouldn't be able to ever pay it back.

Obviously part of the "risk" that they assume and factor in is that even with huge credit lines, individuals even in a jam usually won't come close to using all of their available credit.

[longtimelurker]

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@Anonymous wrote:

Mongolot, don't take this wrong or as an insult, but you're very young and you can never tell what life will bring that could cause you to use credit in a manner that you don't think that you would.  Most people that have got in over their heads with credit and/or filed bankruptcy never intended to be in that situation.  Marriage, children, divorces, ill health and a myriad of other issues can lead people to use credit when they have no other alternative.  It's best to not put yourself in a position where you have so much credit that using 10% might not seem like much because it's low utilization but in reality represents a lot of money.

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Yes, I think that for some, there is a danger that "excessive" credit warps the sense of the value of money.    Many people here have things like "$XXX in credit" as if it was an asset

[Anonymous]

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@longtimelurker wrote:

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Yes, I think that for some, there is a danger that "excessive" credit warps the sense of the value of money.    Many people here have things like "$XXX in credit" as if it was an asset

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100% true.  There was a fantastic quote on this forum back in April maybe a few weeks after I signed up and started reading these forums that related to how people view credit as an asset when it most certainly isn't.  I wish I could remember who posted it and/or what thread that was...

[Blackbeauty212]

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@UncleB wrote:

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@Anonymous wrote:

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@Anonymous wrote:

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@Anonymous wrote:

Sorry about that, I didn't write my post detailed enough. I meant to say why would it be bad for us, rather than the banks/lenders. Thank you for the informative link though . 

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The bad side for us is that some lenders do not like individuals with lots of credit.  For example, Penfed has the term "pyramiding credit" that they use as a denial reason.

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Wow, I have never heard that. It's the same as "too much available credit" right? 

Edit: I have heard of people being denied for "too much available credit" but I would say that is because their income/application profile doesn't support it. That's why we know our highest exposure from lenders. 

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+1

If you see people joking about being an 'Egyptian' this is what they are talking about... it's a play on being told (usually by a credit union) that they are "Pyramiding debt".  

In any case (by any name) my own fear is that if I apply for anything and everything, something will come along that I really want but I'll be declined because either I've already got enough credit, or have too much.

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This is why I think people need to do proper due diligence on their TLs before apping.... I am a firm believer in getting rid of Old Accounts that I will no longer use, and that don't really provide any decent UTL suppression. even for good a UTL buffer only hand full of dormant TLs should do the trick. 

Old accounts will still count towards your AAoA for the next 10years, and by the time your Closed accounts fall off the report your new accounts would at least be 10 years older.

As much as this site feeds the Credit Addiction, I wish it would also create a culture of Responsible credit management. I admit I take a step back from the this place a lot, because I find the insatiable desire to Credit Hoard to be a bit too irresponsible for many.  I'm noticing a lot more "Im In over my head", "I have Too many Cards", "XXX Bank has closed my accounts / CLD / Balanced Chased Me"  threads now, then when I first joined this forum.

This is not a judgement of those that can carry a lot of cards both responsibly as well as have the financial means to do it.. But those that can master it need to understand that very few people can play that game and concur it well, or even sustain it for long periods of time. I myself couldn't do either, play it well or sustain managing a ton of cards. I was glad when I realized I was in over my head, and took control to cut things down to manageable level. I went from managing 17 active card down to 7, and I feel this is perfect for me. I have a rule that everytime I open a new card, something will get purged, consolidated or relegated downward. 

To be honest I don't blame any of these banks for doing wide spread AA/CLDs/Account Closings/Balance Chasing ... People get out of control with Credit even if their not using it. If the bank isn't going to act responsibly to keep people in check, we're doomed.. Too many people look at Credit as an increase in Personal Income, Wealth or Status or all 3 and that just asking for financial ruin. 

TL;DR - People need to learn to purge Old Accounts and Irrelevant TLs, Hording Credit has become an adverse consequence.  

[longtimelurker]

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@Blackbeauty212 wrote:

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As much as this site feeds the Credit Addiction, I wish it would also create a culture of Responsible credit management. I admit I take a step back from the this place a lot, because I find the insatiable desire to Credit Hoard to be a bit too irresponsible for many.  I'm noticing a lot more "Im In over my head", "I have Too many Cards", "XXX Bank has closed my accounts / CLD / Balanced Chased Me"  threads now, then when I first joined this forum.

TL;DR - People need to learn to purge Old Accounts and Irrelevant TLs, Hording Credit has become an adverse consequence.  

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+1   Even the concept of gardening is a little wrong ("growing existing credit lines") there should be some recognition that at times staying where you are is also fine!

[takeshi74]

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@Blackbeauty212 wrote:

As much as this site feeds the Credit Addiction, I wish it would also create a culture of Responsible credit management.  

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It's not the site that is the problem.  It's the users that want quick and easy fixes without bothering to understand anything and they seem to be the majority. Few seem to be interested in bothering with proper research, analysis, understanding the credit world, their own finances, etc.

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@Blackbeauty212 wrote:

I'm noticing a lot more "Im In over my head", "I have Too many Cards", "XXX Bank has closed my accounts / CLD / Balanced Chased Me"  threads now, then when I first joined this forum.

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Doesn't seem much different to me. myFICO has had this sort of rep among credit sites for many years and this is nothing new IMO.

[wasCB14]

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@redpat wrote:

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@Anonymous wrote:

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@Anonymous wrote:

Also not everyone has the luxury of having an emergency fund.  For them their credit cards are their emergency funds.  Or even if you have an emergency fund something beyond what you financially expect comes up like a medical emergency, lay off, theft, family issues, etc.

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Right, but let's say someone has a vast amount of liquid assets to cover all of that. 

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As a college student I would assume those liquid assets would be Mom's or Dad's?

I don't know many college students or many young adults starting out flush with liquid assets, unless some were given to them.

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Having liquid assets means I generally don't care about big CLs in the first place. It's not a question of "why not?" but a question of "why bother?". My CLs are adequate for my spending, and that's all that matters.

I don't see anything wrong with having giant CLs...but I don't see it as a priority. What I care about are rewards/perks and good customer service.

[Anonymous]

I understand the sentiment as staying where you at, and that your available credit certainly isn't an asset. However, your credit score is an asset. I have dialed back my applications significantly but that's mostly because I have done most of the decent ones. Banks are competing and giving out $400+ in bonuses for signing up for cards. I see no problems in taking advantage of that if you have the discipline to manage your credit.

[Blackbeauty212]

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@wasCB14 wrote:

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@redpat wrote:

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@Anonymous wrote:

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@Anonymous wrote:

Also not everyone has the luxury of having an emergency fund.  For them their credit cards are their emergency funds.  Or even if you have an emergency fund something beyond what you financially expect comes up like a medical emergency, lay off, theft, family issues, etc.

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Right, but let's say someone has a vast amount of liquid assets to cover all of that. 

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As a college student I would assume those liquid assets would be Mom's or Dad's?

I don't know many college students or many young adults starting out flush with liquid assets, unless some were given to them.

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Having liquid assets means I generally don't care about big CLs in the first place. It's not a question of "why not?" but a question of "why bother?". My CLs are adequate for my spending, and that's all that matters.

I don't see anything wrong with having giant CLs...but I don't see it as a priority. What I care about are rewards/perks and good customer service.

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Exactly .... 20K CL on a single card is my limit, I don't want no more than that. If the bank was to go over 20K, I would serious ask for CLD to 20K.