How Credit Card Choices Affect Your Credit Rating

By Mark Lambie

Who doesn't love a free gift? A person with great credit can many credit card offers in the post! This is because credit card providers use the concept of risk measurement to determine who should receive a credit card. And if your credit rating is good, you seem to be a good risk to the credit card providers.

Many of their offers are very attractive. For example, they may offer you such incredible deals as no annual fees, low interest rates, high limits, and even additional cards for family, or they may give you plenty of extra rewards and limited time offers just for signing up.

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While it's nice to get offers like this in the mail, you probably want to be careful that you shouldn't jump on each one that comes your way. This can be very dangerous! This is because each card you have increases how much potential debt you have available to use (even if you're not using it) and that increases the amount of risk you may be in the eyes of the lending institutions.

It's a dark spiral, really. Your credit is good so you're thought of as a good risk. Because you're a good risk you get lots of cards. But because you get lots of cards you're thought of as a bad risk! Even if you don't use all of the available credit limit on your cards, the availability is there and that's what lending institutions look at.

So how do you fix that? First, don't sign up for every card that comes your way. Thoughtfully select just a few cards that might be good and throw away the other offers. Select a handful of cards that offer low interest rates, a healthy limit (but not too high), and some points or rewards on regular purchases.

And, if you find that your debts have gotten out of hand from excess credit cards, you may want to consider pulling it all together through a debt consolidation loan. A debt consolidation loan gives you the benefit of getting a fixed monthly payment (rather than an unknown variable payment) and a lower interest rate and usually over a longer period of time to repay.

So credit cards aren't necessarily a bad thing. We need them in this day and age. But what you need to do is approach them thoughtfully, selecting the best and discarding the rest. And if things have gotten out of your control, consolidate your debt to get control of it again.

Mark Lambie is the founder of Loan Source, a website for UK residents seeking secured loans. Visit our website today for a free Home Owner Loan quote and find out how much we can save you.

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