When Good Credit Goes Bad
It’s wonderful to have a good credit rating. A good credit score makes it easy to get approved for a car or home loan and even gives you access to the best interest rates available. In fact, when you have a good credit rating, you may find that banks actually go out of their way to offer you credit. How flattering!
Also, how dangerous. It can be very tempting when everyone wants to offer you a great credit deal. You may have a chance to get a new credit card with a great reward system. You may be offered a card with a cash-back bonus plan that is too good to miss. And what about all of those cards that offer you a free gift card or 2500 free reward points once you make your first purchase? How can you say no to such great offers? Too often, you won’t say no. After all, you’re probably pre-approved. So, you’ll accept the card, and along with the great rewards or the great interest rate, you’ll accept the new credit limit.
One of the problems is that credit limits, especially for those with good credit, are often such large numbers that they can make you feel like you have a huge amount of money available. If you start out with a good credit history, getting a high credit limit is far too easy. Often, your existing credit cards will simply raise your limit without you even asking them to. When you apply for a new credit card, you will probably be rewarded for your good credit rating with a large line of credit. Before you know it, you will have far more credit than you do income. That’s when the trouble can start.
While building a good credit history is incredibly important and can be very difficult, it is even harder to maintain that good credit. It is far too easy to fall victim to the temptation of too many credit cards and too-high credit limits. Before you know it, you can end up with balances that you can’t afford to pay off every month, leading you to resort to the minimum payment. This, in turn, will cause you to carry a balance and pay interest on that balance. Before you know it, you could end up owing more than you are paying each month.
If you end up with serious credit debt, it won’t be long before you run the risk of missing payments either because you have too many to keep track of or because you simply can’t afford to make them all each month. Remember that it’s not just your credit card payments that are part of your credit history. Even if you make paying your minimum credit card payments your priority because you realize how important they are to your credit rating, you may end up missing or being late on other payments, such as rent or utilities. That can also have a damaging effect on your credit score.
Before you know it, your good credit habits may have become bad credit habits. Next you may find yourself with a bad credit history and a low credit score. If mistakes as simple as a late payment have an impact on your credit history, imagine what having an account turned over to a collection agency can do. What a nightmare it can all turn into if you let yourself get carried away!
Of course, as we all know, an ounce of prevention is worth a pound of cure. Before you decide to sign up for that new card, ask yourself if you really need it. More importantly, will you be able to manage it responsibly along with the cards that you already have. Keep in mind that it was the responsible use of credit that got you that good credit score, so continue to use your credit responsibly.