Financial institutions, banks, and credit card companies all make money off consumer credit, so it’s no surprise that there are times when your mailbox is bombarded with unsolicited credit offers. Not only that, but it’s also common to go shopping at your favorite stores and have clerks offer you store-specific cards and credit forms. And while it may seem like money is raining down from heaven, it’s important to remember that credit is not income, and it’s not always a good idea to accept every credit offer that’s presented to you.
1. It Could Actually Lower Your Credit Score
While it may seem counterintuitive that having credit can lower your credit score, there are actually four ways that new credit could negatively affect your score:
Credit checks: New forms of credit, even pre-approved cards, often provoke credit checks, and even a single look into your credit history will lower your score.
Multiple accounts: While having many forms of credit available to you won’t hurt your credit score per se, opening multiple accounts at once will. This is because credit score companies assume that someone opening multiple accounts is facing financial difficulties, and your credit score will automatically suffer.
Credit history: The longer your credit history, the higher your score will be. So if you open a bunch of new accounts at once, there’s no credit history with those accounts and your score will be impacted.
Carrying a balance: For some people, having more available credit means spending more money, and if you can’t pay off the balance every month, your credit score will reflect that.
2. Uncontrolled Spending
Not everybody is great with a budget; some people aren’t able to control the amount of money they spend, and others are just careless with the money they have. And if you’re any of those, having more available credit will mean spending more money, even if you’re not able to pay it back. People often say that having credit available is great for emergencies because you’ll have money available if you need it, but that’s only true if you can curb your spending, pay off your balances with debt resolution, and leave room on your account for those situations.
3. Rising Debt, Interest, and Fees
The more money you put on credit, the more you’re going to owe in the end if you carry a balance every month. So not only do you incur more debt by spending more, but you also accrue more interest on that increasing debt load. The average credit card has an interest rate of over 15 percent, so just one more card could amount to hundreds or thousands of dollars more per year in interest payments alone. Moreover, many credit cards and loans also have associated fees and penalties, so even if you are responsible with your credit, you may still end up owing more. You can avoid bankruptcy by not overwhelming yourself in debt to start.
Credit comes in a lot of different forms, and it’s important to recognize it when you see it. For instance, credit limit increases, balance transfer promotions, and even buy now pay later deals at the local furniture store are all forms of credit. And although having extra credit can be a good thing at times, there are also good reasons to turn down credit offers sometimes. Instead of just accepting every offer that comes your way, take the time to think about the implications, and decide whether or not having the extra credit is worth the possible costs. To find out more, contact a debt specialist today.