Updated: Jun 7, 2020
Good morning Honeys Happy Friday,
How is your morning going?
I know this has been an information-filled week. I also know that credit and loans can be over-complicated at times and that I hope I was able to simplify the concept. Today we'll be finishing the week with what to do when you have too much credit.
First, here is a recap of what we discussed this week.
For today, I figured that I would keep things simple, it is Friday after all.
Too much credit
Yes, there is such a thing as having too much credit. Having too much credit will lead to problems. For instance, when buying a property, this will limit you. Most people don't know they're overextended until they get refused for a loan. This has nothing to do with having bad credit, this is about having too much credit.
And canceling your credit cards won’t fix the problem. Since, if you cancel a card with a good credit history, you will take a hit on your credit score.
How can you overextend your credit?
This happened to me when I was younger since I was saying Yes to every credit application which came in the mail or a store. Now it’s very illegal to get credit applications, by mail. The problem arose when I wanted to buy my first car, I was told by the bank that I had reached my credit limit.
The lesson is that everyone has a credit limit based on their income. To increase your limit you will have to make more money. But in the 2008 economic crisis, no one was getting an annual or quarterly raise. So, in my case, I reached my borrowing limit without realizing it.
Now with this current crisis, it's best to be a lot more careful with your credit and how much credit room you have left to use.
What to do if you’ve reached your limit?
Take stock of all the credit cards you have from your store credit cards to your bank credit cards. Check the history of each card by calling the number on the back of your card. Ask the representative how long has your account been active. You will only keep the 2 with the longest history. You will then pay off the other cards and then cut them up. Do not cancel the other cards.
You will keep two cards, one for emergencies and the other for household expenses like gas and food. These cards should give you cash-back with no annual fees. As for the other cards, you will have to call the credit card company and reduce your limit. You will have to pay off all your other loans. In about 6 months' time, of not using your cards, the bank will no longer consider them as active. Since you will have proven that you don't need those cards for your survival.
That's all for this week, let’s chat next week, same time, the same place… over coffee?
TTYL and by the way…Have a great weekend☺