Do You Really Need More Credit?
I talk to many people who are on a credit hunt. They have decided that they are going to build a huge pile of credit cards, and have lines of credit approaching our national debt!
But when is more credit actually too much credit? Creditors look at your credit, and start to wonder if you are doing what is called ‘debt pyramiding’.
When you apply for a LOT of credit, especially if you try to get it fast with a lot of applications in a short time, a big red flag is raised with a creditor. While having a large line of credit available with a low balance might help your scores a very small amount, your creditors look at things in a slightly different light.
Creditors have noticed patterns of credit usage over time. They know that a person that gets a lot of credit quickly may be tempted to SPEND a lot of credit quickly. Or, you may be on the verge of financial trouble, and you are stocking up on credit lines so you can live off of credit.
When a person is trying to pyramid their debt, that can mean that they are going to by things on one card, and use a different card to make payments. The interest starts to add up, and soon you can’t keep up with the minimum payments, much less the amount you actually owe.
If you have established credit, one of the best things you can do is manage that credit well, and let it age. Trying to get additional credit may hurt your ability to get credit, and denials can hurt your score.
Apply for credit slowly. Get a card, or a loan, and make sure you have no problems with it. Use it wisely. In 6 to 8 months, get another and go through the same process.
I have never heard the term “debt pyramiding” before, but I’m fascinated with your bringing it up. Many years ago, I received an offer in the mail telling me that I could be like all the example people in the offer, and amass credit card debt. It continued by saying that with their help, I could learn how to “wipe” the debt, not have to pay a cent, and get credit once again afterwards. At that time, I had excellent credit, but many credit accounts that I did use and owe money on. I had a hunch that the offer was sent by the credit card companies in order to determine whether I was a legitimate customer or someone willing to scam them. One could use a credit card to buy the offer. Obviously, I didn’t, but it’s stuck in my mind because it was so peculiar.
Hey Phoebe,
Thanks for following the blog!
I read a while back that the average credit card customer costs about $82.00 to acquire. They really scrub their lists before they send them out.
The credit bureaus will do an ‘offer score’, without details, for a credit consumer. The card companies send offers based on that information.
What you were more than likely seeing is a company that specializes in new identities. They claim you were a victim of identity theft, and get you a new SSN etc. This is very illegal, but it happens. That is the only way to completely wipe debt and move to a new credit bureau account. You were smart to ignore it!
The debt pyramid concept revolves around using one card to pay for another, until your balances are high enough that you can;t pay any of your balances with cash. Then you default on all cards. Creditors frown on that.
Again, thanks for reading! If you have any specific questions, I would love to hear them.
Brent
Love the blog! Found it on Bing I have bookmarked it thank you for the Financial tips.
Easily, one of the best things I’ve read today! Subscribed.