Credit Report – Can You Have Too Much Credit?

October 20, 2011 by  
Filed under Mortgage

If you’re like most people in Hawaii, you get offers of credit cards in the mail rather frequently. It doesn’t seem to matter all that much to the credit card companies how good (or bad) your credit is. If you’re in a particular category that they are aiming for (students, retired, young with chil¬dren, middle-aged, or just plain warm), chances are you can get a credit card. If you have good credit, it can be for lots of money. If you have bad credit, well it might have to be a debit card or for a low credit amount. But, most often you can get it!

The trouble is that many of us are tempted to apply time and again. It is not unusual these days for a family to have half a dozen credits cards, just in case. The idea is that you don’t have to borrow the money…but the account is set up and ready just in case you need it.

Generally speaking this is good, logical thinking. The last time you want to approach a lender is when you des¬perately need money. They don’t like desperate people. Thus, setting up what amounts to lines of credit makes good sense.

However, when it comes time to borrow on a Hawaii mortgage, these lines of credit can be troublesome to the mortgage lender. Part of the qualifying process involves determin¬ing your income and expenses, your ability to repay. If you have alot of unused credit, your income will appear high, your expenses low. But with credit cards, that can turn around in a moment. The day after you get the mort¬gage, you can go out and charge to the hilt on all of the cards. (Not really, because if you do so, it could trigger a credit agency alert, which would inform lenders of your actions so they could “pull in their horns.”) At least you can charge a significant amount and incur big expenses and big payments. In short, you could turn yourself around from solvent to insolvent overnight. You might acquire payments too big for you to handle, and the ulti¬mate result could be default on the mortgage.

That’s why while mortgage lenders want you to have some credit, to show proper money management and the ability to borrow; they worry about too much credit. More than three open “trade lines” credit cards or bank lines of credit, and you might find you have trouble getting a mortgage.

The solution is to consider keeping your oldest three credit cards (mortgage lenders also look to see how long you’ve had a line of credit) and dump the rest. That should keep you covered, as far as a credit emergency; yet not worry a mortgage lender.

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