Too Many Accounts with Balances |
By Kenneth Long on May 25, 2010
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You might think that you have been managing your credit well by juggling balances on several credit card accounts. Given the complexities of keeping up with so many accounts, you may have indeed managed them well.
The problem with carrying balances on so many accounts is that FICO credit scoring formulas deduct points from your scores as a penalty. It may seem counterintuitive to punish you for managing so many accounts without fault.
However, the problem with having so many accounts with balances is that you are more susceptible to problems that can cause your scores and financial situation to plummet. Here are some scenarios that are more likely to occur when you carry balances on several open lines of credit:
- Higher risk of missed payments. There is a certain risk of missing a payment on an account. When you are dealing with multiple accounts, this risk is magnified. More importantly, it is easy to forget to pay one account when you are dealing with seven other payments each month. Forgetting a payment can lower your scores and cause a late fee to be assessed.
- Increased risk of multiple late and over-the-limit fees. When you are unable to pay your unsecured debt, you may get hit with a late fee. If you are pushed over the credit limit, then an additional fee can be assessed. Having this occur on two accounts can be difficult to handle. If you are struggling to repay ten accounts, the costs can be much higher. You may not be able to restore so many accounts to current status when your situation improves, leading to defaults.
- Higher risk of interest rate hikes. Credit card companies now must wait until you are 60 days delinquent before they can impose penalty interest rates. The more accounts that you carry balances on, the higher the likelihood that you can find yourself in a position where an account is neglected for a couple of months. Your 9.24% APR could be replaced with 29.74%, adding hundreds or thousands of additional dollars in finance charges each year.
If you are denied credit for having too many accounts with balances, you should cut back on applications for new credit. This is a dangerous indication that your personal finances are heading into troubled waters.
You should strongly consider credit counseling as test to see if your finances are healthy enough to continue on your current path. You may find some disturbing trends in your use of credit that can jeopardize your financial future.
If you are wondering how many accounts you should be carrying balances on, there is no published magic number. However, having any accounts that carry balances from one month to the next indicates that you are paying finance charges and may lack the financial strength or knowledge to pay off the balances in full.
Even if you pay all balances off in full each month, it is theoretically possible that you could see this warning. This is due to the fact that the 30% of your credit scoring formulas that focus on your credit utilization rate are calculated from the total balance on the account that month. Therefore, this can fluctuate if you regularly charge high amounts of debt on your accounts, even if the balances are paid in full monthly.
Join the Discussion at the Credit Forum: Too many accounts with balances
Too many accounts with balances is Code 5 on FICO-based credit scoring products. NextGen includes the factor as Code T1. For more information on credit scoring, see the complete list of credit score factors.
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